- Consumer prices rose 0.3% on the month in November, one tick higher than markets were expecting. Inflation accelerated slightly on a year-on-year (y/y) basis to 2.1%, from 1.8% in October.
- Energy prices were responsible for the hotter headline, rising 0.8% on the month. However, over the past year consumers have been getting a break on energy costs, with energy prices still down 0.6% y/y. Food inflation remains contained, with prices up 0.1% in the month, and up 2% versus a year ago.
- Core prices rose 0.2% (m/m), in line with October’s gain and market expectations. The core inflation rate versus a year ago remained steady at 2.3% in November.
- Core services price growth heated up a bit, accelerating to 0.3% in November (from 0.2% previously). Medical care services prices rose 0.4% in November, and are up 5.1% from a year ago. The shelter index rose 0.3% on the month, helped by a 0.3% increase in rents. Overall core services inflation was up 3.0% versus a year ago, unchanged from October.
- Core goods prices were flat in November, after falling in September and October. New vehicle prices fell (-0.1%) for the fifth consecutive month. Prices also fell for prescription drugs (-0.1%). Other price increases were modest, with apparel up only slightly (+0.1% m/m). Overall, core goods prices were flat versus than a year ago after a period of steady deflation through much of 2013-2018.
Key Implications
- Inflation seems to have settled in for a long winter’s nap. Core inflation remained contained, with the lack of inflation in core goods leaning against stronger inflation for services. The lack of price pressures for core goods is in spite of the tariffs that have been levied on many imported goods over the past year. In part this reflects the offsetting impact of a rising U.S. dollar. That is not to say those price increases aren’t coming, but retailers so far seem reluctant to pass on higher costs to consumers. We expect to see some bigger increases on this front in the new year.
- Today’s CPI reading is consistent with the Fed’s inflation gauge coming in close to the 2% target. At the FOMC decision later today, where the Fed is widely expected to leave the funds rate unchanged, we will be watching for how the FOMC characterizes price pressures. Whatever is said, there is little in November’s data to worry it. The Fed can comfortably hold rates steady and continue to assess how global trade developments and past rate cuts are influencing the economy.
