Inflation up to 2.7% in November

Inflation picked up in November, a sign that the path to reducing price pressures remains bumpy.

The consumer price index rose 2.7% from a year earlier, the Labour Department said on Wednesday, after rising 2.6% in October. Core prices, which exclude volatile food and energy items, rose 3.3% over the past 12 months.
The results matched the expectations of economists surveyed by The Wall Street Journal.

Stocks were higher in morning trading. The Nasdaq Composite was up more than 1%.

The CPI index rose 0.3% from the previous month, the biggest month-on-month increase since April. The increase was driven by continued inflationary pressures in the costs of food, vehicles and medical care.

The pace of increase in housing costs slowed slightly from the previous month, which economists said was a welcome development. However, they expressed concern about continued inflation in the services sector, which accounts for the lion’s share of US economic activity. Core goods inflation also picked up from the previous month, led by a jump in vehicle prices.
“Overall, we’re looking at an environment where the low-hanging fruit has been picked and it’s getting harder and harder to make further progress on containing inflation,” said Sarah House, senior economist at Wells Fargo.

Related video: Fed completely misread where inflation is going, says John Carney (Fox Business)

“Now we’re getting to the point where you really need the demand side of the economy to weaken,” she said. “That’s what makes the last mile so difficult.”

The report follows other data suggesting that US consumers are feeling relatively upbeat, buoyed by a strong jobs market. Spending rose at a steady pace in October, according to the latest data from the Commerce Department.

Consumers have become more optimistic since the US presidential election, according to surveys by the University of Michigan and the Conference Board.

Business confidence has also improved on hopes of more business-friendly tax and regulatory policies under the new Republican administration.

On Tuesday, the National Federation of Independent Business said its small business optimism index rose in November to its highest level since June 2021. The Business Roundtable CEO Economic Outlook Index, which measures companies’ plans for capital investment, hiring and sales, rose in the fourth quarter to its highest level in more than two years.

Companies say inflation is normalising after a volatile few years of supply chain disruptions and demand swings.

“Mainstream households are feeling more confident and are returning more quickly to their pre-pandemic shopping patterns,” Kroger chief executive Rodney McMullen said on an earnings call last week.

Still, he warned that “budget-conscious households remain under pressure as the effects of multi-year inflation and higher interest rates have had a greater impact on these households”.

The Labor Department’s latest snapshot of inflation comes days before the Federal Reserve’s next policy meeting. Since September, officials have cut the benchmark federal funds rate by a total of 0.75 percentage points to a range of 4.5% to 4.75%.

Concerns about a weakening labour market eased somewhat last week with the release of the Labor Department’s November payrolls report. It showed that employers added jobs at a robust pace last month and that workers sidelined by storms and strikes were returning to work. Unemployment remained low and year-on-year wage growth was 4% for the second month in a row, a six-month high.