United States: Inflation Has Stopped Falling

Although November’s CPI data remains in line with consensus expectations, the trend in the all items index continues to disappoint. Specifically, inflation hasn’t been quelled any further in recent months. While the year−over−year change in the all items index fell from 3.4% a year ago to a recent low of 2.4% in September, it has since climbed back to 2.7% (and only just avoided the 2.8% mark, with the exact figure coming in at 2.7494%). The lack of progress on core inflation—which held steady at 3.3% for the third month in a row—is also a concern.

One shift in recent months is that energy prices are no longer falling sharply. Pump prices certainly dropped again in November, but seasonal adjustments reversed this trend. Seasonally adjusted gasoline prices rose 0.6%, their biggest increase since April. Energy prices overall edged up for the first time since early spring, rising 0.2%. Food prices also picked up, with a monthly advance of 0.4% in November.

Turning to the index for all items less food and energy, the fact that goods prices didn’t fall further is disappointing, and their 0.3% gain is the biggest jump since May 2023. Prices of used cars and trucks rose 2.0% after increasing 2.7% in October, which is a major factor behind the spike in core goods prices. Prices of new vehicles, household appliances and men’s apparel also edged up. Clearly, goods excluding food and energy are most at risk if the Trump administration implements new tariffs over the coming years.

Growth in prices of services excluding energy has remained resilient, albeit relatively stable. November’s 0.3% monthly gain mirrored October’s print, following slightly larger increases of 0.4% in August and September. Shelter price growth even slowed slightly last month. That said, although service prices excluding energy and shelter rose 0.3% for the second month in a row, the prevailing trend remains quite strong. The 3−month annualized change was 4.3% in November—stable compared to October but much higher than the 0.5% reading we saw in July. We hope this trend reverses and helps push core and headline inflation closer to the 2% target. Strong wage growth isn’t helping inflation’s path to 2%, although the relatively high productivity at US companies provides some flexibility.

Price growth is stickier than just a few months ago. The lack of further progress on inflation, combined with a labour market rebound and robust wage growth, could sow some doubt in the minds of Federal Reserve officials ahead of next week’s interest rate decision. Discussions may be heated, but we’re still expecting a 25−basis−point cut on December 18.