U.S. consumer price inflation fell more than expected in November to its lowest level in nearly a year, bolstering Federal Reserve plans to slow the pace of interest rate hikes. interest this week.
The rate of increase in the consumer price index fell to 7.1% last month, below the 7.3% expected by economists and down from 7.7% in October. This is the lowest level since December 2021.
Headline CPI rose 0.1% from the previous month, less than the 0.4% rise recorded in October.
U.S. stocks initially soared after the release as investors bet the central bank might not have to squeeze the economy as aggressively as it feared. inflation under control. Those gains dwindled throughout the trading day, with the S&P 500 closing down around 0.8%.
Government bonds also rallied, pushing the yield on two-year US Treasuries, which is sensitive to changes in interest rate expectations, down 0.22 percentage points to 4.18% at one point. It then traded around 2.24%.
The inflation report, released Tuesday by the Bureau of Labor Statistics, came at the start of the Federal Open Market Committee final. two-day political meeting of the year.
On Wednesday, the central bank is expected to raise its benchmark policy rate by half a percentage point, reversing successive interest rate hikes by 0.75 points.
If this increase is implemented, the fed funds rate will move to a new target range of 4.25 to 4.5%, which most officials say is still not high enough to bring inflation back. at the level from the fed long-standing target of 2%.
“A [inflation] This number will not 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 Padhraic Garvey, regional head of research for the Americas at ING. . But he warned that inflation could “pretty easily” surprise next month.
“The sensible thing to [the Fed’s] perspective is to deliver the [half-percentage point move]do it in a hawkish way and don’t have a lap of honor yet.
“If they all get dovish tomorrow, the market will read that and ease financial conditions further and that will just take away the value of the upside in the first place.”
Energy and goods prices have begun to slow this year, after helping push the annual CPI increase to 9.1% in June. But service costs have risen at an alarming rate, supported in part by accelerating wage growth due to a surprisingly resilient economy. labor market.
In November, housing costs were the main driver of monthly consumer price inflation, rising 0.6% from October and 7.1% year on year. House prices have fallen significantly this year as mortgage spending has surged, but those declines are slow to show up in the data, suggesting further downward pressure on inflation next year.
Transportation costs and those related to medical services posted monthly declines, although they were up 14% and almost 5% respectively compared to November last year. However, food prices remain high, registering a monthly increase of 0.5%.
Fed officials acknowledged that getting inflation under control would require a prolonged period of low growth and high unemployment, but they refrained from predicting an outright recession. Most economists say an economic contraction will be needed and predict a mild one next year.
President Joe Biden applauded the slower rise in the CPI in a statement from the White House on Tuesday.
“In a world where inflation is rising in double digits in many of the world’s major economies, inflation is falling in America,” he said. “Make no mistake: the prices are still too high. We still have a lot of work to do, but things are looking up.
Biden said he hopes prices will be “much closer” to “normal” by the end of next year. “We could see setbacks along the way. . . We shouldn’t take anything for granted. But what is clear is that my economic plan is working and we are just getting started. My objective is simple: control price increases without stifling economic growth.
Additional reporting by Harriet Clarfelt in New York and James Politi in Washington