US Markets
Tuesday, December 12th, 2023 3:01 pm EDT
Key Points
- Inflation Trends in November: Prices for a wide range of goods and services experienced a slight increase in November, but the overall trend was mostly in line with expectations. The consumer price index (CPI) rose by 0.1% for the month, and the year-over-year increase was 3.1%, meeting economist predictions. This moderate inflationary pressure helped alleviate concerns on the Federal Reserve.
- Core CPI and Economic Signals: The core CPI, excluding volatile food and energy prices, also showed a 0.3% increase for the month and a 4% rise from a year ago, consistent with estimates. While these numbers still exceeded the Fed’s 2% target, there was ongoing progress, with policymakers focusing on core inflation as an indicator of longer-term economic trends.
- Market and Federal Reserve Outlook: The reaction in financial markets was relatively muted, with Wall Street opening little changed, and major indexes slightly negative in early trading. The Federal Reserve, beginning a two-day policy meeting, was expected to keep interest rates steady for the third consecutive time. The article emphasized the significance of what the Fed signals for the future, with expectations that policymakers would convey the end of the tightening phase and possibly signal future cuts. Futures markets suggested a high probability of aggressive easing in 2024, while respondents to the CNBC Fed Survey anticipated a more measured approach with about three cuts, assuming quarter percentage point increments.
In November, prices for a diverse array of goods and services experienced a modest uptick, largely aligning with expectations and mitigating pressure on the Federal Reserve. The Labor Department’s report on Tuesday revealed a 0.1% increase in the consumer price index (CPI) for the month, with a year-over-year rise of 3.1%, meeting economist predictions of a steady 3.1% rate. Despite a slight monthly acceleration from October’s flat CPI, the annual rate demonstrated a marginal decline from the previous month’s 3.2%.
The core CPI, excluding volatile food and energy prices, exhibited a 0.3% monthly increase and a 4% year-over-year surge, consistent with estimates and comparable to October figures. Although November’s numbers remained above the Federal Reserve’s 2% target, the data indicated a continuing trajectory of progress. Policymakers generally focus on core inflation as a more reliable indicator of longer-term trends.
Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, noted that the report was somewhat aligned with expectations, though perhaps not as optimistic as some had hoped for, emphasizing that the Fed might interpret ongoing disinflation as positive news. Wall Street exhibited minimal reaction to the news, with major indexes slightly negative in early trading, and Treasury yields experienced a slight uptick.
The report highlighted a 2.3% decrease in energy prices, with a 6% drop in gasoline and a 2.7% decline in fuel oil contributing to keeping inflation in check. Food prices increased by 0.2%, driven by a 0.4% surge in food away from home. On an annual basis, food prices rose by 2.9%, while energy prices decreased by 5.4%. Shelter prices, constituting about one-third of the CPI weighting, rose by 0.4% on a monthly basis and showed a 6.5% increase over the year. However, the annual rate displayed a steady decline since its peak in early 2023, and lodging away from home fell by 0.9%.
Lisa Sturtevant, Chief Economist at Bright MLS, emphasized that declining inflation did not imply falling prices; indeed, prices for most goods and services remained higher than pre-pandemic levels, with housing costs particularly burdening individuals and families.
After five consecutive months of decline, used vehicle prices rose by 1.6% in November, while vehicle insurance increased by 1%, marking a 19.2% year-over-year increase. Medical care costs saw a 0.6% rise, while apparel prices fell by 1.3%. Worker paychecks, adjusted for inflation, experienced a 0.2% monthly increase and a 0.8% annual increase, according to a separate release from the Labor Department.
The release coincided with the Federal Reserve’s two-day policy meeting, where it was anticipated to maintain interest rates for the third consecutive time. However, market attention was focused on signals for the future. Having raised rates 11 times since March 2022, policymakers were expected to convey that the policy tightening phase had concluded, with potential future cuts at a yet-to-be-determined pace. Futures pricing suggested virtually no chance of further rate increases, with the first cut expected in May. Futures markets even hinted at aggressive easing in 2024, predicting cuts of up to 1.25 percentage points by the year’s end. Conversely, respondents to the CNBC Fed Survey envisioned a more measured approach, anticipating about three cuts, each in quarter percentage point increments.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/12/cpi-inflation-report-november-2023.html
