The state of inflation in the United States has been a hot topic in recent months, especially with the release of the latest Consumer Price Index (CPI) data for NovemberThe overall CPI showed a month-on-month increase of 0.3%, slightly up from the previous month’s figure of 0.2%. Year-on-year, this translates to a 2.7% increase, up from 2.6% in OctoberMeanwhile, the core CPI, which excludes volatile food and energy prices, maintained its month-on-month growth at 0.3%, with a year-on-year rate stable at 3.3%. These results align closely with what market analysts had been forecasting.

One of the significant takeaways from the CPI report is that while there is a rebound in core commodity prices likely influenced by disruptions from recent hurricanes, the increase in housing rents has decelerated to its lowest point since 2021. This trend alleviates some of the market’s anxiety regarding escalating inflationary pressures

In essence, this data has opened a pathway for the Federal Reserve to consider rate cuts in its upcoming meetings, although rumors suggest a potential “hawkish cut” might be on the table, limiting future guidance on rate reductions.

The report underlines the rebound in the year-on-year growth rate of overall CPI, while the core CPI has held steady for three consecutive monthsThis suggests that inflation has shown resistance and continues to be sticky in natureThe bounce back in core commodity prices, reaching the highest month-on-month growth since May 2023, can be attributed to short-term factors such as extreme weatherThe impact of Hurricane Milton in October led to significant damage, including destroyed homes and vehicles, which in turn may have spurred demand for replacementsNotably, new car prices saw a revitalization to a month-on-month increase of 0.7%, up from flat growth the previous month.

When examining other categories, one finds that furniture and appliance prices also rebounded from no growth to an increase of 0.7%. Clothing prices, after falling by 1.5% the previous month, staged a recovery to a 0.2% growth

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In contrast, medical goods, recreation items, and education-related goods all continued a downward trend, particularly notable in smartphones and computers, which saw declines of 3.7% and 1.7%, respectivelyThese fluctuations arise as consumers and businesses express increased concerns over potential tariff hikes, leading many to begin purchasing large-ticket items like cars and appliances ahead of anticipated price increases.

On a positive note, the rate of increase in housing rents fell to 0.2% in November, representing the lowest growth rate recorded since 2021, thereby lessening concerns regarding overall inflationThe month-on-month increase in rents settled at 0.3%, down from 0.4%. This coincided with the Thanksgiving holiday, during which hotel prices surged from a previous growth rate of 0.5% to 3.7% as celebrations spurred travel demandExcluding the influence of rising hotel prices, the growth rate in rental prices for primary residences dropped significantly; adjusted month-on-month growth for owner-equivalent rents fell from 0.4% to 0.2%. Given that housing rents account for over a third of the CPI, the downtrend in rental inflation is undoubtedly favorable for controlling core CPI metrics.

The core services inflation rate — which excludes housing costs and is particularly watched by the Federal Reserve — held steady at a growth rate of 0.3%. Over the past three months, the annualized rate remains unchanged at 4.3%, indicating persistence in the struggle to meet the Federal Reserve’s inflation target of 2%. Within this category, labor-intensive services such as water and waste management, entertainment, healthcare, and personal care, all maintain steady, relatively high growth rates at around 0.6% to 0.7%. Notably, vehicle repairs have seen month-on-month increases of 0.5%, and bodywork repairs 0.8%, correlating with a rise in demand following weather-related damage repairs.

In summary, the recent inflation data demonstrates that there is potential for the Federal Reserve to lower interest rates as anticipated

Previous commentary from the Federal Reserve indicated that despite the rise in unemployment rates observed in November, unless the inflation data were to dramatically change, the prospect of a rate cut in December appeared secure.

The latest inflation figures support the likelihood of a rate cutFollowing the announcement of these inflation numbers, the market significantly increased its bets on a 25 basis point rate cut during the upcoming FOMC meeting in DecemberJust days earlier, before the release of the non-farm payroll data, market expectation for a cut had been around 67%; this surged to 85% after the employment figures and then to an astonishing 98.6% following the CPI announcement.

However, analysts also caution that a “hawkish cut” could emerge, as the persistent nature of inflation might compel the Federal Reserve to readjust its rate cut predictions