Inflation rose in November, with the Consumer Price Index (CPI) up 2.7% for the 12 months ending in November, compared to a 2.6% annual increase in October. This marks the highest annual rate since July, according to the Bureau of Labor Statistics (BLS). On a monthly basis, consumer prices increased by 0.3%, following four consecutive months of 0.2% gains.
Economists had anticipated the rise, attributing it to unfavorable year-over-year comparisons and persistently high housing-related costs. However, food and energy prices played a larger role this month, with shelter costs accounting for just 40% of the overall monthly increase.
Food and Energy Lead Price Increases
In November, food prices surged 0.4%, while energy prices climbed 0.2%, marking the first increase in six months. Prices for new and used cars also jumped 0.6% and 2%, respectively.
The grocery aisle was a particular pain point for consumers, with at-home food prices rising 0.5% month-over-month. Eggs saw a staggering 8.2% increase due to a deadly avian flu, contributing to a 37.5% year-over-year rise in egg prices.
Despite the increase in food costs, grocery price inflation remained below the overall CPI rate at 1.6% annually. Still, the cumulative effect of high inflation over the past four years continues to strain household budgets.
Core Inflation Holds Steady
Excluding volatile food and energy prices, core CPI rose 0.3% for the fourth consecutive month, maintaining an annual rate of 3.3%. This measure, closely watched by economists and policymakers, underscores the persistent inflationary pressures in the economy.
“The CPI print confirms the market consensus of another [quarter-point] rate cut from the Federal Reserve,” said Josh Hirt, Vanguard senior U.S. economist. He added that labor market strength and sticky inflation components, such as shelter and services, remain key areas to monitor heading into 2025.
Shelter Inflation Shows Progress
Shelter costs, which account for one-third of the overall CPI, have been a significant driver of inflation over the past two years. However, the shelter index rose just 0.3% in November, pushing the annual rate to 4.7%, its lowest level since February 2022. Excluding shelter, all other prices increased at a modest 1.6% annual rate.
“Some [Federal Reserve] members will likely take solace in the improvement in services and housing inflation,” noted Scott Anderson, chief U.S. economist for BMO Capital Markets Economics.
What This Means for the Fed
The November CPI data aligns with expectations for another quarter-point rate cut when the Federal Reserve meets next week. The cut would mark the Fed’s third consecutive reduction, as it seeks to bring rates closer to a neutral level of about 3%.
Still, recent upticks in CPI, the Producer Price Index (PPI), and the Personal Consumption Expenditures (PCE) index suggest inflation remains sticky, which could complicate the Fed’s decision-making.
“We have two CPI prints that were year-over-year upticks… All the core measures of those things picked up,” said Tyler Schipper, an economist at St. Thomas University. “That presents a picture of stagnant inflation.”
Looking Ahead to 2025
Inflation may face additional headwinds next year, particularly from the impact of potential tariffs under President-elect Donald Trump. Large import tariffs, set to take effect early in 2025, could further exacerbate the Fed’s inflation challenge.
“Large import tariffs at the beginning of next year could further aggravate the Fed’s lingering inflation problem,” Anderson warned.
For now, the Fed is likely to proceed with its planned rate cut, while keeping a close eye on inflation trends and external pressures in the months ahead.
