The pace of U.S. inflation fell more than expected in November, arriving at the slowest month-over-month increase all year.
The Consumer Price Index (CPI) rose 0.1% in November after increasing 0.4% in October, the U.S. Bureau of Labor Statistics reported Tuesday. On a year-over-year basis, inflation rose 7.1% in November, down from 7.7% in October and the smallest 12-month increase since the period ending December 2021.
Core CPI, which excludes the volatile food and energy categories, came in below expectations at an annual rate of 6% in November, down from the 6.3% reported in October. On a monthly basis, core inflation increased by 0.2% in November. Estimates placed core CPI at a 6.1% annual increase and a 0.3% monthly increase.
“Core CPI inflation rose at a 4.3% seasonally adjusted annualized rate over the last three months, the lowest such reading since October 2021. It rose at a 5.4% annualized rate over the last six months, also the lowest reading this year,” tweeted Nick Timiraos, chief economic correspondent for The Wall Street Journal.
Tuesday’s CPI report highlighted a more general slowdown in many indexes that were hit hardest by inflation, although the shelter index remained the dominant factor in the monthly increase to all indexes for all items less food and energy; other components were a mix of increases and declines.
Among the indexes that rose in November was the index for communication, which increased 1% over the month after decreasing 0.1% in October. The index for recreation rose 0.5% in November, following a 0.7% increase in the previous month. The motor vehicle insurance index increased 0.9% in November, the personal care index rose 0.7%, and the education index rose 0.3% over the month, the Bureau of Labor Statistics reported.
Indexes that declined over the month include the index for used cars and trucks, which fell 2.9% in November, its fifth consecutive decline. The index for airline fares fell 3.0% over the month, following a 1.1% decrease in October. The index for household furnishings and operations was unchanged in November, as was the index for new vehicles.
Meanwhile, the shelter index, which comprises nearly one-third of the basket for consumer price inflation, was by far the largest contributor to the monthly increase (+0.6%), more than offsetting decreases in energy indexes (-1.6%).
A breakdown of the energy index showed a decrease of 1.6% in November after a 1.8% increase in October. The gasoline index declined 2% over the month, following a 4% increase in October. The index for natural gas continued to decline over the month, falling 3.5% after decreasing 4.6% in October, while the electricity index decreased 0.2% in November.
“Another downside inflation surprise not only validates a Fed decision to slow the pace of rate hikes,” but “it also raises hopes that the inflation surge may actually be tamed within the next 12 months,” said Seema Shah, chief global strategist at Principal Asset Management in emailed comments reported by Yahoo Finance.
Tuesday’s CPI report is the last major economic report of 2022 and the final dataset to be released ahead of Wednesday’s policy-setting Federal Open Market Committee (FOMC), in which Federal Reserve Chairman Jerome Powell is expected to close out the year with a final 50 basis-point rate hike.
In terms of what Powell will say during Wednesday’s press briefing, Shah predicted “Powell will likely maintain an element of caution in his comments,” adding that wage inflation from a strong jobs market can still pose a problem for monetary policymakers.
The food index and the food at home index each increased 0.5% over the month. The energy index decreased 1.6% over the month as the gasoline index, the natural gas index, and the electricity index all declined.
Excluding the disproportionate effect of rising shelter costs, inflation’s broad-based slowdown is an encouraging sign that the Federal Reserve’s relentless stream of rate hikes may finally be working.
The U.S. Central Bank has raised interest rates at a record-breaking pace this year, with four consecutive 0.75% rate hikes in November, September, July, and June, and 0.25% and 0.50% hikes earlier in the year.
Eyes and ears are laser-focused on what Powell says at Wednesday’s policy meeting and how Fed officials plan to maneuver their policy stance heading into 2023.
“The difference between inflation at 5% and inflation at 3% next year lies in the ability of the Fed to slow the labor market further, which likely requires further monetary tightening and absolutely no rate cuts,” Shah said.