US consumer price inflation eased more than expected in November
US consumer price inflation eased more than expected in November to its lowest level in almost a year, bolstering the Federal Reserve’s plans to slow the pace of interest rate rises this week.
The rate of increase in the consumer price index fell to 7.1 per cent last month, lower than the 7.3 per cent forecast by economists and down from 7.7 per cent in October. It is the lowest level since December 2021.
Overall CPI rose 0.1 per cent from the previous month, less than the 0.4 per cent increase in October.
US stocks initially soared after the release, as investors bet that the central bank might not have to squeeze the economy as aggressively as feared to bring inflation under control. Those gains ebbed throughout the trading day, with the S&P 500 up 0.6 per cent.
Government bonds also rallied, sending the yield on two-year US Treasury bonds, which is sensitive to changes in interest rate expectations, down by 0.22 percentage points to 4.18 per cent at one point. It later traded around 2.24 per cent.
The inflation report, released by the Bureau of Labor Statistics on Tuesday, came at the start of the Federal Open Market Committee’s final two-day policy meeting of the year.
On Wednesday, the central bank is set to raise its benchmark policy rate by half a percentage point, breaking successive 0.75 point interest rate increases.
If that increase is implemented, the federal funds rate will move up to a new target range of 4.25-4.5 per cent, which most officials believe is still not high enough to bring inflation back down to the Fed’s longstanding 2 per cent target.
“One [inflation] number won’t be enough for the Fed, but it certainly is going to put the Fed in a better mood than they have been over the past number of weeks,” said Padhraic Garvey, regional head of research for the Americas at ING. But he warned that inflation could “quite easily” surprise next month.
“The sensible thing from [the Fed’s] perspective is to deliver the [half-percentage point move], do it in a hawkish manner and don’t have a victory lap just yet.
“If they go all dovish tomorrow, the market will read that and will loosen up financial conditions further and it just takes away the value of the hike in the first place.”
Energy and goods prices have begun to slow this year, having previously helped to push up the annual increase in the CPI index to 9.1 per cent in June. But services-related costs have risen at an alarming pace, bolstered in part by an acceleration in wage growth as a result of the surprisingly resilient labour market.
In November, housing-related costs were the biggest driver of the monthly increase in consumer prices, rising 0.6 per cent compared to October and 7.1 per cent on an annual basis. Home prices have…
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