WASHINGTON: US consumer prices increased in November by the most in seven months, but the Federal Reserve was still expected to deliver a third consecutive interest rate cut next week to support a labour market that has been cooling.
Progress in lowering inflation toward the US central bank's 2 per cent target has virtually stalled, with the report from the Labour Department on Wednesday also showing no improvement in the measure of underlying price pressures over the past four months.
Despite persistently high inflation, there was some encouraging news. Rents, one of the stickier components of inflation, rose at the slowest pace in nearly 3-1/2 years. The rise in motor vehicle insurance, another troublesome category, moderated. These factors slowed the increase in services inflation.
A sustained cooling trend would bode well for the inflation outlook, though looming tariffs from the President-elect Donald Trump's incoming administration pose a threat.
"Some Fed officials will likely take solace in the improvement in services and housing inflation," said Scott Anderson, chief US economist at BMO Capital Markets. "With that said, the Fed will need to see more improvement on the inflation front in the months ahead, if its plan for a steady pace of additional rate cuts next year is to be fulfilled."
The consumer price index rose 0.3 per cent last month, the largest gain since April after advancing 0.2 per cent for four straight months, the Labour Department's Bureau of Labour Statistics said.
A 0.3 per cent increase in the cost of shelter, mostly hotel and motel rooms, accounted for nearly 40 per cent of the rise in the CPI. Shelter costs rose 0.4 per cent in October. The cost of lodging away from home, including hotels and motels, jumped 3.7 per cent. That was the most since October 2022 and followed a 0.5 per cent rise in October.
Food prices increased 0.4 per cent after rising 0.2 per cent in October. Grocery store food prices surged 0.5 per cent, with the cost of eggs soaring 8.2 per cent amid an avian flu outbreak.
Beef also cost more as did nonalcoholic beverages. But prices of cereals and bakery products fell 1.1 per cent, the most since the government started tracking the series in 1989. Gasoline prices rebounded 0.6 per cent while the cost of piped gas surged 1.0 per cent.
In the 12 months through November, the CPI climbed 2.7 per cent after increasing 2.6 per cent in October. The rise in the CPI was in line with economists' expectations.
The annual increase in inflation has slowed considerably from a peak of 9.1 per cent in June 2022. The Fed's focus has shifted more toward the labour market. Though job growth accelerated in November after being severely restricted by strikes and hurricanes in October, the unemployment rate ticked up to 4.2 per cent after holding at 4.1 per cent for two consecutive months.
CORE INFLATION STUCK
Excluding the volatile food and energy components, the CPI increased 0.3 per cent in November, rising by the same margin for the fourth consecutive month.
Rents increased 0.2 per cent, the smallest gain since July 2021, after rising 0.3 per cent in October. Owners' equivalent rent, a measure of the amount homeowners would pay to rent or earn from renting their property, rose 0.2 per cent. That was the smallest gain since April 2021 and followed a 0.4 per cent increase in October.
"Residential rental prices as captured in CPI might finally be displaying the slowdown long flagged by real-time rent prices," said Kathy Bostjancic, chief economist at Nationwide. "This is significant."
The cost of motor vehicle insurance edged up 0.1 per cent. Airline fares rose 0.4 per cent after soaring 3.2 per cent in October.
But the cost of healthcare services increased 0.4 per cent. The cost of services as a whole increased 0.3 per cent and nudged up 0.1 per cent when excluding rent of shelter.
Goods prices increased 0.4 per cent after being unchanged in October. They were boosted by higher prices for new motor vehicles as well as used cars and trucks, likely as residents in the country's Southeast replaced vehicles damaged by hurricanes.
In the 12 months through November, the so-called core CPI gained 3.3 per cent, matching the advance in October. Over the past three months, the core CPI averaged a 3.7 per cent annualised rate.
Based on the CPI data, economists estimated that the core personal consumption expenditures (PCE) price index rose 0.2 per cent in November after advancing 0.3 per cent in October. Core inflation was forecast increasing 2.9 per cent year-on-year after gaining 2.8 per cent in October, in part because of unfavorable base effects.
These estimates could change after November's producer price data due for release on Thursday.
Despite the lack of progress in the inflation fight, investors took comfort from the moderation in the cost of rent and the fact that core inflation had not deteriorated.
Stocks on Wall Street were trading mostly higher. The dollar rose against a basket of currencies. US Treasury yields fell.
Financial markets have almost fully priced in a quarter-percentage-point rate cut at the Fed's December 17-18 policy meeting, according to CME Group's FedWatch Tool. Before the release of the inflation data, the odds were roughly 86 per cent.
Economists expect policymakers will signal fewer rate cuts in 2025 when they update their summary of economic projections next week. Though slower inflation is forecast next year as rent costs cool further and labour market slack grows, that could be offset by higher prices from tariffs on goods and mass deportations of immigrants that have been promised by Trump.
The Fed kicked off its monetary policy easing cycle in September. Its benchmark overnight interest rate is now in the 4.50-4.75 per cent range, having been hiked by 5.25 percentage points between March 2022 and July 2023 to tame inflation.
"The lack of meaningful progress on inflation means that in their summary of economic projections Fed officials are likely to signal just three rate cuts in 2025 versus the four they projected in September," said James Knightley, chief international economist at ING. — Reuters
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