The latest Consumer Price Index (CPI) showed that inflation rose 0.3% in November, with the annual reading coming in at 2.7%.While this was an uptick from 2.6% YoY in September and 2.4% YoY in August, it was in line with what economists had forecasted.
The core measure, which strips out volatile food and energy prices, increased 0.3% from October while the annual reading held steady at 3.3%. These figures also met expectations.
Note that shelter costs remain the largest contributor to Core CPI, and they’re still overstated due to the lag effect. Inflation would be lower if more real-time shelter costs were better reflected in the reporting.
What’s the bottom line?
This latest inflation report comes ahead of the Fed’s 2-day meeting Tuesday and Wednesday, where they will be deciding whether to cut their benchmark Fed Funds Rate (which is not mortgage rates or even a long-term rate). The Fed Funds Rate is a very short-term rate, literally a rate that’s only good overnight. Banks use this as the rate that they lend money to one another, but it is the building block for all interest rates.
Remember the Fed began aggressively hiking the Fed Funds Rate in 2022 to curb runaway inflation. More recently, cooling consumer inflation and rising unemployment caused the Fed to start cutting the Fed Funds Rate, first by 50 basis points at their meeting in September. A 25-basis point cut followed on November 7.
Markets are currently expecting another 25-basis point cut this Wednesday.