EconoFACTS

December 11, 2024 | 09:51

U.S. Consumer Inflation Progress Stalls

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

U.S. CPI inflation for November was uncomfortably warm even though it was in-line with the consensus forecast. Prices increased 0.3% month-on-month -- the fastest monthly pace since April. U.S. consumer inflation year-on-year increased by another tenth of a percentage point to 2.7% from 2.6% in October and a low of 2.4% in September. The inflation rate from a year ago was the fastest since July. We saw an unfavorable pickup in commodities (+0.5%), food/beverages (+0.4%), gasoline (+0.6%), and motor vehicles (new +0.6%, used 2.0%) prices last month that kept inflation elevated even as we saw some marginal improvement in services (+0.3%) and housing (+0.3%) inflation. For example, owners’ equivalent rent increased a relatively tame 0.2% last month from 0.4% in October.

Core CPI inflation, excluding food and energy, remained sticky at an elevated 0.3% m/m, where it has remained over the past four months, though this was also in-line with our and the consensus expectation. The 3-month average core inflation rate is still running at a “hot” 3.7% annualized, well above the Fed’s 2.0% target. The 'Supercore' measure, services excluding housing and energy, is increasing at an even more over-heated pace of 4.3% annualized over the past three months. From a year ago, core CPI inflation held at an unsettling 3.3%, in-line with forecasts and October’s year-on-year reading.

Bottom Line: Despite stubborn persistence in the headline and core CPI inflation data, today’s report likely won't preclude the Federal Reserve from one more quarter point rate cut before the end of the year. Some FOMC members will likely take solace in the improvement in services and housing inflation. With that said, the Fed will need to see more improvement on the inflation front in the months ahead, if its plan for a steady pace of additional rate cuts next year is to be fulfilled. Large import tariffs at the beginning of next year could further aggravate the Fed’s lingering inflation problem.

Fed funds futures are still pricing in a 99% probability of a quarter point cut next week, but only three and a half quarter point cuts by the end of next year. Treasury bond yields were generally trading lower following the CPI release as investors were already positioned for some bad inflation news and some took comfort in the improvement in services and housing inflation.

Table 1 - United States — CPI

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics