Inflation heated up last month as consumer prices rose 2.7%, underscoring the slog ahead

CNN

By Alicia Wallace, CNN

(CNN) — Inflation heated back up again in November, but it likely wasn’t bad enough to keep the Federal Reserve from cutting rates next week.

Consumer prices were up 2.7% for the 12 months ended in November, moving higher from the 2.6% annual increase seen in October and marking the highest annual rate since July, according to the latest Consumer Price Index data released Wednesday by the Bureau of Labor Statistics.

On a monthly basis, prices rose by 0.3% after rising 0.2% for the prior four months.

Economists were expecting inflation to pick up by 0.2% from October and record a 2.7% annual increase, primarily due to unfavorable comparisons from a year ago and stubborn housing-related inflation.

However, in November, shelter-related costs weren’t the primary driver for the monthly increase: Shelter prices rose 0.3% for the month, accounting for nearly 40% of the overall gain (whereas, in past months that share has been north of 50%, and sometimes 70% and 90%).

Instead, a big push came from food (up 0.4%) and energy prices, which rose 0.2% and posted the category’s first increase in six months. New and used cars also saw price increases of 0.6% and 2%, respectively.

Food and gas are two of the most visible and frequent ways that consumers encounter inflation. And when prices go up in areas where people — especially lower-income Americans — spend the majority of their monthly budget, it’s a disheartening endeavor.

“Many consumers pay attention to inflation headlines, but they also base their judgements on the health of the economy on their personal experiences,” Elizabeth Renter, senior economist at personal finance site NerdWallet, wrote Wednesday. “The prices impacting your household’s bottom line may not be the biggest movers in this month’s inflation data. And when your budget is stretched thin despite inflation slowing significantly over the past few years, it can be difficult to stay optimistic.”

Food and energy-related items also are subject to a lot of volatility due to incidents such as weather and disease. So, to get a better sense of underlying inflation trends, economists and policymakers closely look at “core” readings, which exclude food and energy costs.

Core CPI rose 0.3% for the fourth consecutive month, holding firm at 3.3%, where it’s been since September.

“The CPI print confirms the market consensus of another [quarter-point] rate cut from the Federal Reserve,” Josh Hirt, Vanguard senior US economist, wrote on Wednesday. “We are still closely monitoring the strength of the labor market and potential stickiness of certain components of inflation (shelter, services) heading into 2025.”

Sticker shock in the grocery aisles

The CPI measures price changes for a basket of commonly purchased goods and services.

And in November, the cost of that grocery store basket was a bit more painful than it has been for a while.

Prices for food purchased for at-home consumption shot up 0.5% from October, marking the largest monthly increase since January 2023.

Four of the six major grocery store food group indexes increased, with categories such as beef rising 3.1% and eggs jumping 8.2%. An ongoing deadly avian flu coupled with holiday-based demand has caused shortages and driven egg prices higher.

Egg prices are up 37.5% from this time last year, BLS data shows.

Despite the sticker shock on staples, grocery price inflation (at 1.6% annually) is still running below the overall CPI rate. But the cumulative effect of nearly four years of higher-than-typical inflation has weighed heavily on consumers, said Tyler Schipper, an associate professor in economics and data analysis at St. Thomas University in St. Paul, Minnesota, told CNN in an interview Wednesday.

Grocery price inflation “was already a pain point ahead of this, so any change in grocery prices is going to be a big story for households,” he said, adding that egg prices are a significant part of that storyline.

“We have some PTSD around egg prices from the pandemic and certainly lingering avian flu outbreaks; but those prices being up almost 40% year over year certainly is another thing people will look at in the grocery store and use as a symbolic metric for food prices being higher generally — even if it is an outlier,” he added.

Speaking of outliers, the cereals and bakery products index tumbled 1.1% from October, which is the largest-ever monthly decrease ever reported for that index, which started in 1989, the BLS noted in the report.

What this means for the Fed and rate cuts

The November CPI data showed that price pressures continue to persist, but it also fell largely in line with expectations, teeing up another quarter-point rate cut from the Fed when it meets next week.

In addition to financial markets participants overwhelmingly predicting another rate cut is in store, central bank officials have made similar indications. Last week, Fed Governor Christopher Waller said he’s leaning toward a cut so long as there aren’t “surprises to the upside” that alter his forecasts for inflation’s path.

Still, the latest inflation data might not make for an easy decision for the Fed, Schipper said.

“We have two CPI prints that were year-over-year upticks; [the Producer Price Index], so upstream inflation picked up last month; [the Personal Consumption Expenditures price index] picked up last month; all the core measures of those things picked up,” he said. “Those can be written off as bumps in the road, but it presents a picture of stagnant inflation, where they’re not making the kind of progress that we’d seen earlier.”

However, November’s report did show continued (albeit slow) progress on a major contributor of inflation, he added.

The shelter index, which measures the “service that a housing unit provides its occupants,” is one of the largest parts of the CPI basket of goods and services, accounting for one-third of the overall index.

And that category has been running stubbornly higher than inflation for more than two years, BLS data shows. After peaking at 8.2% in March, it has trudged lower and now sits at an annual rate of 4.7%, its lowest since February 2022.

Excluding shelter inflation, all other prices rose at 1.6% from the same period last year, NerdWallet’s Renter said.

“Some [Federal Reserve] members will likely take solace in the improvement in services and housing inflation,” Scott Anderson, chief US economist for BMO Capital Markets Economics, wrote in a note on Wednesday. “With that said, the Fed will need to see more improvement on the inflation front in the months ahead, if its plan for a steady pace of additional rate cuts next year is to be fulfilled.”

Looking ahead to 2025, there are some potential headwinds to inflation slowing further, notably the impact on prices from any new tariffs enacted by president-elect Donald Trump.

“Large import tariffs at the beginning of next year could further aggravate the Fed’s lingering inflation problem,” Anderson wrote.

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