Today’s Consumer Price Index (CPI) report should come as a neutral indicator that inflation is still on the way down, although perhaps not as quickly as the Federal Reserve would like. However, that hasn’t stopped analysts from offering hordes of speculation over the implications of the November CPI.
So, what do you need to know about today’s major inflation report?
Well, today’s CPI marks the final major economic data release ahead of the Fed’s December rate-hike decision — the last of the year — set for tomorrow, Dec. 13. In that regard, the November inflation reading is unlikely to affect things very much, one way or the other.
Indeed, prices as measured in the CPI’s basket of goods were relatively unchanged in November, climbing 0.1%, up 3.1% from the same time last year. This is just barely hotter than expectations, as Dow Jones economists had projected no monthly change and annual inflation in-line with the reading.
Headline inflation actually improved slightly from October as well, which came in at 3.2%, recording 0% price change during the month.
The core CPI, which excludes food and energy costs, came in similarly in-line with estimates, reading 0.3% on the month and up 4% from last year, the same as in October.
Food and energy costs exhibited the most sizable changes in November. Food prices increased 0.2% last month, mostly due to a 0.4% increase in “food away from home.” Meanwhile, energy prices dropped a staggering 2.3%, largely on the back of easing gasoline and fuel oil prices, which respectively dropped 6% and 2.7%. For the year, food is up 2.9% while energy is down 5.4%.
According to Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, today’s CPI report came in “somewhat in line, although […] not as good as what some might have hoped that we would start to see more deceleration on a month over month basis.”
What Does the November CPI Report Mean for the Fed’s Policy Decision?
For better or worse, today’s inflation report will likely play little role in Wednesday’s Fed meeting. Is inflation still slightly higher than the Fed’s 2% target? Sure. Will that prompt the central bank to raise rates again? Probably not.
If anything, the November CPI likely calmed some of the rampant speculation that the Fed will cut rates in the near term. Wall Street has been abuzz since last month’s inflation readings, hoping that the Fed may take a dovish pivot under the assumption that inflation will soon hit 2%. Today’s report mildly contradicts that overly hopeful sentiment — at least for the near term.
The Fed has a balancing act to maintain, after all. The central bank is easing prices with restrictive interest rate policy while simultaneously doing its best to avoid a potentially painful recession.
To that end, the Fed has done doing quite a good job, at least so far. Inflation is down by around 65% from the 9.1% peak reading seen back in June 2022. At the same time, unemployment and consumer spending have held out valiantly, with the November jobs report showing just 3.7% unemployment.
Hopes of a successful “soft landing” have perhaps never been higher heading into 2024. Still, many economists would likely argue that it’s too early to make any definitive rulings.
Most agree that the Fed will likely leave rates untouched tomorrow. Per the CME FedWatch Tool, interest rate traders are currently pricing in a 98.4% probability the Fed doesn’t touch the benchmark rate and a 1.6% chance of a 25 basis-point increase to a range between 5.5% and 5.75%.
“Undoubtedly this is their most important hour, attempting to thread the needle between soft landing and cutting too soon only to see inflation return with a vengeance,” Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth, told Barron’s. “A rock and a hard place at best.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
