The annual inflation rate rises to 2.7% in November, as expected

Consumer prices rose at their fastest annual pace in November, reminding both households and policymakers that inflation remains a problem.

The consumer price index The 12-month inflation rate was 2.7% after rising 0.3% on the month, the Bureau of Labor Statistics reported on Wednesday. The annual rate was 0.1 percentage point higher than in October.

Excluding food and energy costs, the core CPI was 3.3% annually and 0.3% monthly. The 12-month baseline reading was unchanged from a month ago.

All numbers are in line with Dow Jones consensus estimates.

The readings come as Federal Reserve officials ponder next week’s policy meeting. Markets are keenly expecting the Fed to cut its short-term borrowing rate by a quarter of a percentage point when the meeting ends on December 18, but will then skip January as they measure the impact of successive cuts on the economy.

The report further bolstered expectations for a market contraction, with traders raising the odds to 99%, according to the CME Group. FedWatch measure The probability of a cut in January also increased, reaching around 23%.

“Core inflation clears the way for a rate cut at next week’s (Federal Open Market Committee) meeting,” said Whitney Watson, co-head and global co-head of fixed income at Goldman Sachs Asset Management. “Following today’s data the Fed will head into the holiday break still confident in the disinflation process and we believe it remains on track to gradually ease into the new year.”

While inflation is well off the 40-year high seen in mid-2022, it remains above the Fed’s 2% annual target. In recent days, some policymakers have expressed frustration with the resilience of inflation and indicated that the pace of rate cuts may have to slow if further progress is not made.

If the Fed continues with tapering next week, it will cut the federal funds rate by a full percentage point starting in September.

Much of November’s rise in the CPI came from shelter costs, which rose 0.3% and have been one of the most stubborn components of inflation. Fed officials and many economists expect housing-related inflation to ease as new rental leases are negotiated, but the item has continued to increase each month.

A measure within the shelter component that asks homeowners what they can get in rent for their properties rose 0.2%, as did the real rent index. These are the smallest monthly increases since April and July 2021.

The BLS estimated that the shelter component, which weighs one-third in the CPI calculation, accounted for about 40% of total growth in November. The shelter index rose 4.7% over 12 months in November.

Used vehicle prices rose 2% month-on-month, and new vehicle prices rose 0.6%, reversing a recent downward trend in these items.

Additionally, food costs rose 0.4% month-on-month and 2.4% year-on-year, while the energy index rose 0.2% but fell 3.2% annually. Within food, the measure of cereal and bakery products fell 1.1% in November, the largest monthly decline in the measure’s history dating back to 1989, according to the BLS.

It means an increase in the CPI average hourly earnings for workers was essentially flat in the month when adjusted for inflation, but increased 1.3% from a year ago, the BLS said in a separate statement.