In November, the United States experienced a significant upward trend in its Consumer Price Index (CPI), with both year-on-year and month-on-month figures showing notable increasesThe core CPI, which excludes volatile food and energy prices, maintained its growth rate from OctoberThese developments have substantially strengthened market expectations for a potential interest rate cut by the Federal Reserve in December.

Data released by the U.SBureau of Labor Statistics on December 11 revealed that the CPI rose by 2.7% annually in November, matching analyst expectations and rising slightly from October's 2.6%. On a monthly basis, the CPI increased by 0.3%, which is a rise from 0.2% in October, marking the highest monthly rate since April of this yearSuch data has led to a reinforced belief among investors that the Fed may reduce rates in the upcoming month.

Core CPI, which excludes food and energy prices, climbed 3.3% year-on-year in November, remaining unchanged from October's figures and aligning with predictions

On a month-to-month basis, the core CPI also increased by 0.3%, consistent with both the previous month's figure and projectionsThis marks the fourth consecutive month of a 0.3% increase in the core CPI.

A closer examination of the CPI report reveals that one of the most stubborn contributors to inflation in recent years has been housing costs, a major category within the services sectorThough there was some easing in housing costs in November, this sector continues to account for nearly 40% of overall inflationIn November, housing prices rose by 0.3%, slightly down from 0.4% in OctoberRental prices, including owners’ equivalent rent, registered the smallest increase since 2021 at just 0.2%. When viewed over a 12-month period, the housing index showed an increase of 4.7%.

Some Fed officials and economists anticipate that inflation related to housing will ease as new leasing negotiations progress, yet the reality remains that this category continues to exert upward pressure on prices.

Excluding housing and energy, service sector prices also increased by 0.3% for the second consecutive month

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Although Federal Reserve officials have emphasized the importance of this indicator when appraising overall inflation trends, they calculate this data using a different index—the Personal Consumption Expenditures (PCE) price index—which does not weigh housing as heavilyThis methodology contributes to the PCE’s tendency to align more closely with the Fed's goal of 2% inflationA report on Producer Price Index (PPI) data is due to be released, providing insight into direct impacts on personal consumption expenditures, including costs of healthcare services, airfare, and portfolio management.

The CPI report further indicates that costs for goods excluding food and energy surged by 0.3%, the largest increase since May, largely driven by rises in furniture and clothing pricesThis category has been a key driver of inflation cooling over the past year and a half.

Additionally, hotel accommodation prices saw their highest hike in two years, while automotive prices similarly rose, suggesting a temporary uptick in demand following recent hurricanes

The prices for used cars escalated by 2% month-on-month, with new cars increasing by 0.6%, reversing a prior decline in these figures.

Prices for grocery items saw a 0.5% rise in November, marking the most significant increase since the beginning of the previous year, while monthly food costs rose by 0.4% and annually by 2.4%. Notably, within the food index, prices for grains and baked goods witnessed a sharp 1.1% decline—the most considerable drop in this index's history since 1989.

As for energy, the index increased by 0.2% compared to the previous month, yet dropped by 3.2% year-on-year.

Following the release of the CPI data, market interpretations suggest an intensified likelihood of the Federal Reserve cutting rates in DecemberAccording to the CME Group’s FedWatch tool, the market's expectations for a rate drop surged from 86.1% prior to the data release to 96.4% thereafter

Concurrently, market speculation regarding a potential January rate cut in 2024 saw a slight increase to approximately 23% following the CPI announcement.

Nick Timiraos, a prominent financial journalist often referred to as the “new Fed whisperer,” commented on the CPI's rise to 2.7% in November, noting a stagnation in the progress of reducing inflation, suggesting that the path to alleviating price pressures remains fraught with challenges, posing significant hurdles for both the incoming government and the Federal Reserve.

On another note, there are also proponents of a more optimistic outlookEconomists from Citigroup, Veronica Clark and Andrew Hollenhorst, noted in a report that the slowdown in housing costs offers considerable room for the Fed to lower its policy rates by 25 basis points in December, with potential room for further cuts in 2025.

Looking ahead, the extent to which the U.S