Inflation in the United States edged slightly higher in November, driven by increasing costs for used cars, groceries, and hotel stays, signaling that some price pressures remain persistent. The Consumer Price Index (CPI) rose 2.7% compared to a year ago, up from 2.6% in October. Core inflation, which excludes food and energy, held steady at 3.3% for the second consecutive month. On a monthly basis, both overall and core prices increased by 0.3%, marking the largest rise since April.
Fed Poised for Rate Cut Despite Inflation Data
The latest data from the Labor Department arrives just before the Federal Reserve’s decision on interest rates next week. Despite the uptick in inflation, Wall Street traders overwhelmingly anticipate the Fed will reduce its key rate by a quarter-point, with CME FedWatch tracking a 98% probability of a cut. The central bank previously lowered rates in September and November, bringing the benchmark rate to 4.6% from its peak of 5.3%.
Persistent Price Pressures
Key price increases in November included:
- Grocery Prices: Up significantly, with beef prices rising 3.1% monthly (5% yearly) and egg prices surging 8.2% monthly (38% yearly).
- Gasoline: Increased 0.6% after a streak of declines but remained down 8% year-over-year.
- Hotel Rooms: Up 3.2% monthly (3.7% yearly).
However, rental prices showed signs of cooling, increasing just 0.2%, the smallest rise since July 2021.
Economic Outlook and Risks
The U.S. economy remains resilient, growing at a 2.8% annual rate in Q3, supported by strong consumer spending. While some analysts believe further rate cuts aren’t necessary, Fed Chair Jerome Powell has indicated a desire to “recalibrate” rates to align with easing inflation. A slowdown in hiring poses a risk of economic weakening, which potential rate cuts could mitigate.
Trump’s Tariff Plans Pose Inflation Risk
Another challenge to controlling inflation is President-elect Donald Trump’s proposal for broad tariffs on imports, including a 10% tariff on all goods and a 60% tariff on Chinese products. Economists predict these tariffs could push core inflation to 2.7% by the end of 2025, compared to 2.4% without them.
Next week, the Fed will announce its rate decision and release updated economic projections, likely revising its forecast of four rate cuts for 2025.
