Bottom Line:
This is not a good report for the Federal Reserve (Fed) as the headline CPI increased on a year-over-year basis and the core CPI was unchanged for the third consecutive month. And this time around, the strength of the inflation number was not due to the strength in shelter prices, which slowed down slightly from October. Major contributors were new and used cars prices, food prices and energy prices. Thus, the Fed is probably still going to cut rates next week but the prospects for a continuation in the easing cycle are becoming more and more, well, data dependent. And the data has not been nice for the Fed lately. Thus, we should expect next week’s decision to be rationalized as a “hawkish cut” in rates.
Summary:
The Consumer Price Index (CPI) increased a more than expected 0.3% on a seasonally adjusted basis in November after four consecutive 0.2% prints in the previous months, according to the Bureau of Labor Statistics. The core CPI, which excludes energy and food prices, increased 0.3%, as expected, during the month.
The year-over-year headline CPI increased from 2.6% in October to 2.7% in November while the core CPI remained at 3.3% for the third consecutive month. Food prices increased by 0.4% as prices of food at home surged 0.5%, while food away from home prices increased by 0.3%. Energy prices increased another 0.2% as gasoline prices and fuel oil prices both increased by 0.6%. Energy services prices dropped 0.1% as electricity prices declined 0.4% but natural gas prices increased by 1.0%.
Within the all items less food and energy, new vehicles prices increased by a 0.6% while used cars and trucks prices increased by a strong 2.0% after increasing 2.7% in October. Services less energy services prices increased by 0.3%. The major contributors to the increase in this category were shelter prices, which increased by 0.3% and medical care services prices, which increased by 0.4% during the month.
Observations:
According to the release, despite increases in used cars prices, food prices, and energy prices, the shelter price increase accounted for almost 40% of the rise in the November CPI.


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