The first new inflation reading since the government shutdown showed prices unexpectedly fell in November, although the report may not immediately change the Federal Reserve’s outlook due to possible distortions in the data.
“This seems like positive news overall, but the lack of detail and lack of data collection during the lockdown introduces a degree of skepticism that is hard to ignore,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “We will have to wait until next month to get a clearer reading on inflation.”
The consumer price index rose 2.7% in November, compared to Wall Street expectations of 3.1%. On a “core” basis, which excludes volatile food and energy prices, inflation clocked in at 2.6%, compared with estimates of 3%. Core inflation had been stuck around 3% for months, causing many at the Federal Reserve to worry that inflation had plateaued.
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This month’s CPI does not include month-over-month figures because the government was shut down for a month and a half, halting much of the price data collection by the Bureau of Labor Statistics. However, during the two-month period since September, the BLS said that both the headline and core CPI had increased just 0.2%.
Federal Reserve Chair Jerome Powell warned last week that the central bank would take a “skeptical look” at November data because of the impact of the shutdown. In fact, there were significant gaps in the data, as the information was not collected for a month and a half.
Still, many economists believe the latest inflation reading shows progress toward the central bank’s 2% inflation goal.
“The Fed said it was in ‘wait and see’ mode, and today it could see inflation moving in the right direction. Inflation may still be above target, but today’s data extended the possibility of additional rate cuts a little further,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
A drop in rents lowered the overall inflation figure, even as basic goods rose 1.4% due to tariffs. Utilities inflation, excluding energy prices, rose 3%, still high but below the 3.5% since September and a category many Fed hawks are watching.
Federal Reserve Governor Stephen Miran, appointed by President Trump in September, has repeatedly said he believes the Fed can lower rates because rents have fallen. When rents are factored into the CPI calculation, Miran says inflation is lower and mitigates any rate increases, something he doesn’t see at this time. Thursday’s report underscored Miran’s argument.