November inflation rises at the slowest rate this year, beating expectations
Better than expected inflation numbers for the November Consumer Price Index (CPI) mean the Fed is likely to slow the rate of increases at its next meeting, economists said. (iStock)
The annual level of inflation continued to improve in November, registering the smallest monthly increase since the end of 2021, according to the latest report from the Bureau of Labor Statistics (BLS).
The Consumer Price Index (CPI), a measure of inflation, rose 7.1% year-over-year in November, a slowdown from the 7.7% increase in October. On a monthly basis, inflation rose 0.1% from October to November.
The increase was driven by a surge in prices for shelter and food, according to the report. Shelter costs continued to rise rapidly, up another 0.6% in November. The food index increased 0.5% in November, following a 0.6% increase in October. The food-at-home index also rose 0.5% in November.
But gas prices decreased by 2% in November, following a 4% increase in October. The energy index fell 1.6% in November after rising 1.8% in October.
"Both topline and core CPI inflation slowed in November, showing some measure of progress in the ongoing struggle to tame inflation," Morning Consult Economic Analyst Kayla Bruun said. "That said, price levels remain quite elevated compared with a year ago for many categories, and these high prices continue to put pressure on household budgets and force trade-offs with purchasing decisions.
"Morning Consult's data suggests easing price pressures are likely to continue amid softer demand for a variety of goods and services," Bruun continued.
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Fed expected to slow interest rate increase at next meeting
Inflation has now declined two percentage points from its peak of 9.1% annual growth in June. The better inflation figures are likely to be a welcome and hopeful sign for policymakers and boost chances that the Federal Reserve will slow the rate of increases at its upcoming December meeting, according to two economists.
In November, the Fed increased rates by 75 basis points, marking the sixth rate hike this year and cited the still-high inflation numbers as one of the reasons it continued with its aggressive monetary policy. The Fed has set a 2% inflation target.
"The Federal Reserve is expected to increase the fed funds rate by 50 basis points tomorrow, moving away from the aggressive consecutive increases in the last four meetings, Dawit Kebede, Credit Union National Association (CUNA) senior economist, said on Tuesday. "This CPI report shows that price trends are going in the right direction although inflation is still very high above target."
The lower inflation figures should also provide the Fed "reassurance that stepping back their pace of tightening isn't premature," Jim Baird, Plante Moran Financial Advisors chief investment officer, said.
"For consumers, any improvement is welcome news for spending budgets that have tightened considerably over the past year, squeezing on discretionary spending and creating sustained anxiety for lower-income households and those on a fixed income in particular," Baird continued.
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Potential for a recession is the next concern
The latest CPI showed that inflation may have peaked, but Baird warned that the next challenge for the U.S. economy is a potential slowdown.
"There's growing evidence that the worst of the inflation scare may be in the rearview mirror," Baird said. "On the horizon is the potential for a recession – the next hazard in the road that policymakers will need to navigate the economy around or potentially through."
Baird said that a combination of increasing layoffs and a slowdown in new job creation paints a real possibility that the U.S. economy is slowing down.
The economy added 263,000 jobs in November, according to the latest jobs report from the Bureau of Labor Statistics (BLS) and the unemployment rate stood at 3.7%, unchanged from October. Fitch Ratings said it expected job losses to pick up in 2023, according to its unemployment forecast.
"Lower inflation is good news for the Fed, but it's far too soon for policymakers to take a victory lap," Baird said. "If inflation has been the frying pan, the potential for recession is the fire toward which consumers and investors alike are likely to turn their attention in the coming months."
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