US CPI Matches Forecasts, Boosting Rate Cut Speculations
New York, Wednesday, 11 December 2024.
November’s US CPI rose 0.3%, aligning with expectations and bolstering hopes for a Federal Reserve rate cut. Food costs drove the increase, while shelter prices showed cooling trends.
Key Inflation Metrics
The U.S. Bureau of Labor Statistics reported today that both headline CPI and core CPI (excluding food and energy) increased by 0.3% in November [1]. The year-over-year inflation rate climbed to 2.7%, while core inflation held steady at 3.3% [1][2]. These figures perfectly matched economists’ forecasts, suggesting that while disinflation has somewhat stalled, inflation remains on a controlled trajectory [1].
Housing Costs Show Promising Signs
A significant development in November’s report was the moderation in shelter costs, which typically constitute the largest portion of CPI increases. While shelter expenses still accounted for approximately 40% of the monthly increase, the owners’ equivalent rent component rose by just 0.23% - marking the smallest increase since early 2021 [1]. This cooling in housing costs provides a positive signal for overall inflation trends [1].
Market Response and Fed Implications
Financial markets responded positively to the inflation data, with S&P 500 futures gaining 0.5% and Treasury yields declining [1]. The report has strengthened market expectations for monetary policy easing, with an 88% probability of a quarter-point interest rate cut at the upcoming Federal Reserve meeting [2]. However, as noted by Dan North, senior economist at Allianz Trade Americas, ‘the inflation dragon has not been slain’ [2], suggesting continued vigilance is necessary.
Looking Ahead
The Federal Reserve’s next policy meeting is scheduled for December 17-18, 2024 [4], where these inflation figures will play a crucial role in decision-making. While the path to the Fed’s 2% target remains challenging, Goldman Sachs projects core CPI inflation to soften to 2.7% in 2025 [2]. However, potential headwinds exist, including concerns about planned tariffs that could keep inflation elevated in the coming year [2].