U.S. inflation rose to an annual rate of 2.7% in November, up from 2.6% in October, according to Consumer Price Index (CPI) data released Wednesday by the Bureau of Labor Statistics. The monthly increase was 0.3%, marking the highest annual inflation rate since July.
The figures are in line with market forecasts and reinforce expectations that the Federal Reserve will cut rates at its next policy meeting on December 18. Traders have priced in a 99% chance of a 25 basis point decline, according to CME Group’s FedWatch measure.
If there is a reduction, it will be the third such reduction since September, totaling one percentage point reduction.
Increased costs of food, housing and vehicles
Housing costs, which have consistently fueled inflation in recent years, rose 0.3% in November. This represents almost 40% of the total increase in the CPI, although its influence was less pronounced than in previous months, when it contributed up to 90% of the monthly increase. The annual housing inflation rate now stands at 4.7%, down from a peak of 8.2% in March.
Food prices rose 0.4% for the month, with home food prices increasing 0.5%, the largest monthly increase since January 2023. The main contributors were beef, which rose 3.1%, and eggs, which jumped 8.2% in November. On an annual basis, egg prices have increased 37.5%, with the Bureau of Labor Statistics citing the lingering effects of avian flu outbreaks and holiday-related demand. Prices of cereals and bakery products, however, fell 1.1%, the largest monthly decline since the index was launched in 1989.
Energy prices, which had declined for six consecutive months, rose 0.2% in November, reflecting a trend reversal.
Prices of new and used vehicles have also increased. Used vehicle prices jumped 2%, while new vehicle prices climbed 0.6%, continuing their rebound from earlier declines.
Core inflation and market reaction
The market reaction was relatively muted. The U.S. dollar index rose 0.15% after the CPI release, while S&P 500 futures gained 0.5%.
The Fed has been fighting inflation by raising rates since 2022. This has helped push the headline CPI down to its current level of 2.7%, down from 9.1% in June 2022.
But the Fed’s goal of a 2% annual inflation rate (measured by the personal consumption expenditures price index, but highly correlated with the core CPI) may not be achievable in the near term , particularly because of “sensitive” elements such as housing, medical care, insurance premiums, childcare and utilities. Many of these elements are based on annual variations or adjusted via regulatory decisions, making them less sensitive to anti-inflationary measures.
The core CPI, which excludes the volatile food and energy components, rose 0.3% for the fourth consecutive month, maintaining an annual rate of 3.3%. This rate has remained unchanged since September, reinforcing expectations of a rate cut by the Federal Reserve.
If inflation no longer accelerates, markets generally interpret this as a green light for the Fed to shift from fighting inflation to stimulating growth, and early rate cuts can prevent the economy from ‘enter a deeper slowdown. Gov. Christopher Waller recently said he would support lowering rates as long as inflation “does not surprise on the rise.”
As 2025 approaches, some analysts have flagged potential obstacles to reducing inflation. These include the possible impacts of new tariffs on imports, lower taxes and evictions under President-elect Donald Trump, all of which are seen as likely to increase consumer prices.
