US Core Inflation Hits Lowest Level Since 2021
In November, underlying US inflation increased at the slowest annual rate since early 2021, marking an unexpected improvement after months of persistent price pressures. The core consumer price index, excluding the frequently fluctuating food and energy categories, rose by 2.6 percent in November compared to the previous year, as reported on Thursday, down from a 3 percent annual gain recorded two months earlier. The overall CPI increased by 2.7 percent in November compared to the same month last year. The report, however, faced complications due to the federal government shutdown, which hindered the BLS from gathering a significant portion of the October price data and limited its ability to assess month-over-month changes across several key inflation categories.
The reports shows that the core CPI increased by 0.2 percent over the two months ending in November, restrained by declines in the costs of hotel stays, recreation, and apparel, while household furnishings and personal care products registered increases. Despite the numerous caveats, the report offers tentative optimism that inflation pressures may be easing after remaining stuck within a narrow range for much of the year. Financial markets reacted positively, with stock-index futures extending gains, Treasury yields remaining subdued, and the dollar weakening following the release.
The implications of the CPI report for Federal Reserve policymakers remain uncertain, as officials continue to hold differing views on the interest-rate path for the coming year. Last week, the Fed cut rates for a third consecutive meeting to guard against a sharper deterioration in labor market conditions. Fed Chair Jerome Powell cautioned that the CPI data “may be distorted” due to the unprecedented length of the government shutdown that ended on Nov. 12. The shutdown eliminated the October report and delayed price collection in November, potentially skewing results due to seasonal discounting such as Black Friday, although the BLS approved extra hours to improve coverage.
Goods prices excluding food and energy rose 1.4 percent year over year, slightly below the 1.5 percent increases seen in August and September. The BLS reported monthly changes for certain categories, including vehicles and gasoline, using third-party data sources, with new-car prices rising 0.2 percent and used-car price growth slowing. Powell noted that goods inflation could peak in the first quarter barring new tariffs. Services prices excluding energy increased 3 percent year over year, while shelter costs rose 3 percent, the smallest gain in more than four years. The CPI relies mainly on in-person price collection, supplemented by phone, online, and third-party data, with the BLS emphasizing that indexes based solely on non-survey data remain very limited.
