U.S. consumer price inflation fell more than expected in November to the lowest level in nearly a year, boosting the Federal Reserve’s plans to slow the pace of interest rate hikes this week.
The rate of increase in the consumer price index fell to 7.1 percent last month, below the 7.3 percent forecast by economists and down from 7.7 percent in October. This is the lowest level since December 2021.
Overall CPI rose 0.1 percent from the previous month, down from a 0.4 percent increase in October.
U.S. stocks initially rose after the release, as investors bet the central bank may not push the economy as aggressively as feared to bring inflation under control. Those gains were pared throughout the trading day, with the S&P 500 closing down nearly 0.8 percent.
Government bonds also rallied, sending yields on two-year U.S. Treasury bonds, which are sensitive to changes in interest rate expectations, down 0.22 percentage points to 4.18 percent at one point. It later traded up around 2.24 percent.
The inflation report, released Tuesday by the Bureau of Labor Statistics, came at the start of last year’s two-day policy meeting of the Federal Open Market Committee.
On Wednesday, the central bank is set to raise its benchmark policy rate by half a percentage point, breaking a streak of 0.75 point interest rate hikes.
If the hike is implemented, the federal funds rate will move to a new target range of 4.25-4.5 percent, which many officials believe is still not high enough to bring inflation back to the Fed’s long-term 2 percent target.
“one [inflation] The number won’t be enough for the Fed, but it will certainly put the Fed in a better mood than it has been in the past few weeks,” said Padraic Garvey, regional director of research for the Americas at ING. A month can “easily” surprise.
“It’s wise [the Fed’s] The vision is to deliver [half-percentage point move]do it brilliantly and still not have a winning hand.
“If they’re interesting tomorrow, the market will read that and lower the financial terms even more and that will destroy the value of the increase in the first place.”
Energy and commodity prices started this year at a slower pace, having previously helped push the annual increase in the CPI index to 9.1 percent in June. But service-related costs have risen at an alarming pace, bolstered by a surprisingly fast labor market resulting in faster wage growth.
In November, housing-related spending was the biggest driver of the monthly increase in consumer prices, up 0.6 percent from October and up 7.1 percent on an annual basis. House prices have fallen materially this year as mortgage costs have risen, but the decline is taking time to show in the figures, suggesting further downward pressure on inflation next year.
Transportation costs and those related to medical services saw monthly declines, though they increased by 14 percent and nearly 5 percent, respectively, compared to November last year. However, food prices remained high, recording a month-on-month increase of 0.5 percent.
Fed officials have acknowledged that getting inflation under control will require a sustained period of low growth and high unemployment, but forecasts of an immediate recession remain short. Many economists say that economic contraction will be necessary and next year will be a mild one.
President Joe Biden welcomed the slow CPI increase in a statement from the White House on Tuesday.
“In a world where inflation is doubling in most of the world’s major economies, inflation in America is falling,” he said. “Make no mistake: prices are still high. We need more work, but things are getting better.”
Biden said he hopes prices will be “very close” to “normal” by the end of next year. “We can see the obstacles on the way… We should not take anything for granted. But what is clear is that my economic plan is working and we are just getting started. My goal is simple: without stopping economic growth. Take the price rise under control.
Additional reporting by Harriet Clarfelt in New York and James Politi in Washington