• Consumer prices rose 0.3% MoM, accelerated to 2.7% YoY

• Core inflation posted a fourth consecutive 0.3% MoM; unchanged at 3.3% YoY

• Shelter prices continued to be a major contributor to the CPI move

• Core services inflation rose 0.3% MoM

• Core goods prices recorded strongest monthly gain

• November CPI solidifies December rate cut

November’s US CPI data holding steady within its range as the report largely aligned with expectations, showing no significant progress toward easing price pressures further. With no surprise, the data cleared the way for a 25bps rate cut by Fed next week.

Headline CPI rose 0.3% MoM, supported by a 0.3% MoM rise in the shelter index, which accounted for nearly 40% of the monthly increase. Energy prices rose 0.2% MoM, led by an uptick in prices at the pump (+0.6% MoM), while food prices rose 0.4% MoM, following a gain of 0.2% MoM in October. On an annual basis, headline CPI ticked up from 2.6% YoY in October to 2.7% YoY in November, aligning with market forecasts. Among key categories, food prices increased 2.4% YoY, while energy prices remained a deflationary force, falling -3.2% YoY.

Core CPI, excluding volatile food and energy prices, also rose by 0.3% MoM matching the monthly gain in each of the prior three prior months, and in line with the consensus forecast. The Core CPI held steady at 3.3% YoY while the three month-annualized ticked up to 3.7%. The details show housing looking a little more benign with owners' equivalent rent and primary rents coming in at a pleasing 0.2% MoM.

Price growth on core services were up a 0.3% MoM (0.28% unrounded), following a 0.35% MoM gain in October. On a year-ago basis, services prices were up 4.6% or roughly two percentage points above its pre-pandemic pace of growth when inflation was running closer to 2%. Primary shelter costs rose 0.2% MoM, the slowest monthly gain since April 2021, as both rent of primary residence (Nov: 0.2% MoM; Oct: 0.3% MoM) and owners’ equivalent rent (Nov: 0.2% MoM; Oct: 0.4%MoM) decelerated last month. Apparel posted a similar increase and education and communication prices falling 0.4% MoM. On a 12-month basis, primary shelter remains elevated at 4.8%, but is well off its 2023 high of over 6%.

Non-housing services inflation or “supercore” remained firm, rising 0.4% MoM. The uptick was largely driven by a sharp rise in lodging away from home (3.2% MoM) and still firm price growth for recreation (0.7% MoM) and medical care (0.4% MoM) services. Other areas of past inflationary pressure including airfares and vehicle insurance were relatively negligible in November.

Core goods prices rose 0.3% MoM – its strongest monthly gain in 17 months – following a flat reading in October. New and used vehicle prices increased 0.6% MoM and 2.0% MoM, respectively were a major contributor to last month’s gain. Most other components came in at around 0.3%.

November CPI Solidifies December Rate Cut

The November CPI report indicates that inflation reduction has significantly slowed down, suggesting the Fed's goal of returning to 2% inflation is still a distant target. Four consecutive months of 0.3% monthly inflation and a stagnant annual inflation rate above 3% for the past six months underscore this trend. While the easing of shelter inflation was a positive development, especially after its unexpected rise in October, the overall picture remains challenging. The November CPI data solidified expectations for a 25bps rate cut by the Fed next week, as widely anticipated and priced into the market, with CME FedWatch pricing a near-certainty at 98.6%. However, the market's attention has shifted to January, with a high probability of over 75% for a rate hike pause. The Fed's outlook remains relatively unchanged, with policymakers likely to reassess the economic situation early next year, considering uncertainties related to fiscal and trade policies under the new US administration.

The stalling progress in disinflation strengthens the argument for the Fed to pause rate adjustments in January, especially as it awaits the inauguration of President-elect Trump on January 20. The uncertainty surrounding his future policies encourages a cautious approach to preserve flexibility. Contributing factors include stronger-than-expected economic growth, optimistic survey data following the Republican victory, rising short-term inflation expectations, and the Fed’s emphasis on a gradual strategy. Additionally, with inflation progress slowing and some proposed policies of the incoming administration - such as tariffs and tax cuts - likely to intensify inflationary pressures, the Fed is expected to slow the pace of rate cuts and adopt a more cautious stance heading into 2025.

Source: BIMB Securities Research - 12 Dec 2024