Inflation continued to moderate in November

The November Consumer Price Index (CPI) showed that inflation rose 3.1% from a year earlier, vs. 3.2% y/y in September and 6.4% y/y at the beginning of the year. Meanwhile, core CPI, which excludes volatile food and energy prices, rose 4.0% in November from a year earlier, vs. 4.0% y/y in October and 5.6% y/y at the beginning of the year.

The Fed will be pleased with this print and will hold rates steady at the conclusion of the December FOMC meeting tomorrow. However, as Chair Powell said last month - future progress on inflation will be “lumpy” and “bumpy.” We expect the Fed to close in on its 2% y/y inflation target by the end of next year. We also expect the US economy to cool significantly in early 2024 under the weight of elevated interest rates. As such, the Fed is likely to start lowering rates in mid-2024 as a pace of 25 basis points per meeting.

Data Details

Headline CPI rose by 0.1% month-on-month and 3.1% y/y, vs. October’s 0.0% m/m and 3.2% y/y. Shelter prices continued to rise in November, but a decline in gasoline prices kept the headline index from rising much. Energy commodity prices fell 5.8% m/m while used vehicle prices rose 1.6% m/m and transportation services rose 1.1% m/m. Meanwhile, food prices rose 0.2% m/m.

Core CPI rose 0.3% m/m and 4.0% y/y, vs. October’s 0.2% m/m and 4.0% y/y. While shelter prices rose 0.4% m/m, this is down significantly from the rates recorded at the onset of 2023.