Inflation rose at annual 7.1% over last year

Inflation slowed again last month, more than expected, as the Federal Reserve raised interest rates at the fastest pace in decades.

The Consumer Price Index (CPI) in November showed a 7.1% increase over last year and 0.1% increase over the month, the Bureau of Labor Statistics said Tuesday. Economists had expected prices to rise at an annual 7.3% clip and 0.3% month-over-month, per Bloomberg data.

On a “core” basis, which strips out the volatile food and energy components of the report, prices climbed 6.0% year-over-year and 0.2% over November. Consensus estimates called for a 6.1% annual increase and 0.3% monthly increase in the core CPI reading.

U.S. stock futures surged following the release. Contracts on the S&P 500 rallied 2.8%, while futures on the Dow Jones Industrial Average soared more than 700 points. Nasdaq futures jumped 3.8%.

While November’s figures showed a modest deceleration in inflation, the costs of essential items and housing facing U.S. consumers still remain stubbornly high and well above the Federal Reserve’s long-term price stability target of 2%.

The Fed keeps a closer eye on “core” inflation, which offers policymakers a more nuanced look at inputs like housing. The headline CPI figure, in contrast, has moved largely in tandem with erratic energy prices this year.

The energy index declined 1.6% for the month after a 1.8% rise in October. The downshift was driven in part by a 2% slide in the gasoline category of the measure after gas prices rose 4% in October.

While falling energy prices sent headline inflation lower last month, the shelter category of CPI — which accounts for 30% of overall CPI and 40% of the core reading — was the dominant contributor to the monthly all-items increase and more than offset declines in energy indexes. The cost of shelter rose 7.1% over the last year, comprising nearly half of the total increase in core CPI, the Bureau of Labor Statistics said.

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“Housing costs have a unique, symbiotic relationship with inflation,” Bright MLS Chief Economist Lisa Sturtevant said in a note.

In a speech at the Brooking Institution in Washington D.C. last month, Federal Reserve Chair Jerome Powell emphasized that housing inflation has risen rapidly, while inflation in other core services “has fluctuated but shown no clear trend.”

Meanwhile, food prices rose 0.5%, little changed from the 0.6% increase seen in October. Four of the six major grocery store food group increased over the month.

Tuesday’s key inflation report – perhaps the last major economic release of 2022 – also comes as the Federal Reserve kicks off its final meeting of the year. On Wednesday, members of the policy-setting Federal Open Market Committee (FOMC) are poised to lift interest rates by 50 basis points, a slowdown from the 0.75% increases delivered over the past four…