Consumer prices in the United States rose at a more moderate pace in November, sparking optimism among investors that inflationary pressures may be easing sufficiently to prompt a more accommodative stance from the Federal Reserve than previously expected. The Consumer Price Index (CPI) increased at an annualized rate of 2.7% for the month, according to a delayed report from the Bureau of Labor Statistics (BLS). This figure was notably lower than the 3.1% rise that economists surveyed by Dow Jones had anticipated.
Furthermore, the core CPI, which excludes the often volatile costs of food and energy, also surprised on the downside, advancing by 2.6% over the past year—again falling short of the 3% forecast. Monthly increases for both the overall and core CPI were recorded at 0.2%, compared to the expectations of a 0.3% rise.
The report represents the first set of data encompassing the period during the recent U.S. government shutdown, which disrupted the normal data collection process. Consequently, the release originally scheduled for October was canceled, leading to a lack of typical comparison points in the latest report. While the BLS indicated that it could not retroactively collect the October data, it utilized some alternative data sources to produce the CPI calculations.
On an annual basis, food prices saw an increase of 2.6%, while energy costs rose by 4.2%. Shelter expenses, which account for roughly one-third of the CPI weight, went up by 3%. This shift in shelter pricing is significant as it previously contributed substantially to high inflation readings, suggesting some movement toward the Federal Reserve’s target inflation goal of 2%.
Despite these seemingly positive signs, economists advise caution in interpreting this data as indicative of a longer-term downward trend in inflation due to the absence of October data for comprehensive comparison. Nonetheless, investors are keenly analyzing this report for insights on forthcoming monetary policy decisions from the Federal Reserve. Earlier in the month, the Fed had already lowered its benchmark overnight rate by 25 basis points for the third consecutive time.
Market analysts, including Tom Lee, head of research at Fundstrat, noted that a tempered CPI indicates the Fed’s commitment to safeguarding the employment market. Lee suggested this could create a “Fed ‘put’” for the economy, indicating ongoing support for the stock market in light of downside economic risks.
While the likelihood of a rate cut in January remains low, traders began factoring in an increased probability for a rate reduction in March, with the CME Group’s FedWatch tool reporting a 58.3% chance for that month, up from 53.9% the previous day. Following the CPI report, stock futures reacted positively, with S&P 500 futures rising approximately 0.5%, poised to break a four-day streak of losses. Concurrently, Treasury yields experienced a slight decline, with the 10-year note yield trading around 4.11%.
