WASHINGTON, D.C. — US consumer prices increased in November by the most in seven months, but the Federal Reserve (Fed) was still expected to deliver a third consecutive interest rate cut next week to support a labor market that has been cooling.
Progress in lowering inflation toward the US central bank’s 2-percent target has virtually stalled, with the report from the Labor Department on Wednesday also showing no improvement in the measure of underlying price pressures over the past four months.
Despite persistently high inflation, there was some encouraging news. Rents, one of the stickier components of inflation, rose at the slowest pace in nearly three-and-a-half years. The rise in motor vehicle insurance, another troublesome category, moderated. These factors slowed the increase in services inflation.
A sustained cooling trend would bode well for the inflation outlook, though looming tariffs from the President-elect Donald Trump’s incoming administration posed a threat.
“Some Fed officials will likely take solace in the improvement in services and housing inflation,” said Scott Anderson, chief US economist at BMO Capital Markets. “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.”
The consumer price index rose 0.3 percent last month, the largest gain since April after advancing 0.2 percent for four straight months, the Labor Department’s Bureau of Labor Statistics said.
In the 12 months through November, the CPI climbed 2.7 percent after increasing 2.6 percent in October. The rise was in line with economists’ expectations.
The annual increase in inflation has slowed considerably from a peak of 9.1 percent in June 2022. The Fed’s focus has shifted more toward the labor market. Though job growth accelerated in November after being severely restricted by strikes and hurricanes in October, the unemployment rate ticked up to 4.2 percent after holding at 4.1 percent for two consecutive months.
Excluding the volatile food and energy components, the consumer price index increased 0.3 percent in November, rising by the same margin for the fourth consecutive month.
In the 12 months through November, the so-called core CPI gained 3.3 percent, matching the advance in October. Over the past three months, the core CPI averaged a 3.7-percent annualized rate.
Based on the CPI data, economists estimated that the core personal consumption expenditures price index rose 0.2 percent in November after advancing 0.3 percent in October. Core inflation was forecast to increase 2.9 percent year on year after gaining 2.8 percent in October, in part because of unfavorable base effects.
These estimates could change after November’s producer price data due for release on Thursday, US time.
Despite the lack of progress in the inflation fight, investors took comfort from the moderation in the cost of rent and the fact that core inflation had not deteriorated.
Financial markets have almost fully priced in a quarter-percentage-point rate cut at the Fed’s Dec. 17-18 policy meeting, according to CME Group’s FedWatch Tool. Before the release of the inflation data, the odds were roughly 86 percent.
Economists expect policymakers will signal fewer rate cuts in 2025 when they update their summary of economic projections next week. Though slower inflation is forecast next year as rent costs cool further and labor market slack grows, that could be offset by higher prices from tariffs on goods and mass deportations of immigrants that have been promised by Trump.
The Fed kicked off its monetary policy easing cycle in September. Its benchmark overnight interest rate is now in the 4.50- to -4.75-percent range, having been hiked by 5.25 percentage points between March 2022 and July 2023 to tame inflation.
“The lack of meaningful progress on inflation means that in their summary of economic projections Fed officials are likely to signal just three rate cuts in 2025 versus the four they projected in September,” said James Knightley, chief international economist at ING.
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