Inflation Clocks in Below Expectations in a Rarity – Up 7.1% Year-Over-Year in November

Prices rose less than expected in November, the latest sign that the runaway inflation that has been gripping the economy is beginning to loosen up.

The consumer price index, which measures a wide basket of goods and services, rose just 0.1% from the previous month, and increased 7.1% from a year ago, the Labor Department reported Tuesday. Economists surveyed by Dow Jones had been expecting a 0.3% monthly increase and a 7.3% 12-month rate.

The increase from a year ago, while well above the Federal Reserve’s 2% target for a healthy inflation level, was tied for the lowest since November 2021.

Excluding volatile food and energy prices, so-called core CPI rose 0.2% on the month and 6% on an annual basis, compared to respective estimates of 0.3% and 6.1%.

Stocks roared higher following the report, with futures tied to the Dow Jones Industrial Average up more than 800 points initially before easing a bit.

Falling energy prices helped keep inflation at bay. The energy index declined 1.6% for the month, due in part to a 2% decrease in gasoline. Food prices, however, rose 0.5% and were up 10.6% from a year ago. Even with its monthly fall, the energy index was higher by 13.1% from November 2021.

Shelter costs, which make up about one-third of CPI weighting, continued to escalate, rising 0.6% on the month and now up 7.1% on an annual basis.

The CPI report comes the same day the rate-setting Federal Open Market Committee begins its two-day meeting. Markets widely expect the FOMC on Wednesday to announce a 0.5 percentage point rate increase, regardless of Tuesday’s CPI reading.

Inflation spiked in the spring of 2021, the result of numbers converging factors that took price increases to their highest levels since stagflation days of the early 1980s.

Among the main aggravating circumstances were a supply and demand imbalance brought on by the pandemic, Russia’s invasion of Ukraine and the impact on energy prices, and trillions of dollars in fiscal and monetary stimulus that sent an abundance of money chasing too few goods that were caught up in supply chain problems.

Used vehicle prices, which had been a major contributor to the initial inflation burst, fell 2.9% for the month and are now down 3.3% from a year ago. As recently as February, the used cars and truck index was up more than 40% on an annual basis, the result of higher demand as a microchip shortage caused a backlog in new car production.

Medical care services costs also declined 0.7% on a month basis and were up 4.4% annually.

Headline CPI peaked around 9% in June 2022 and has been on a slow but steady decline since.

After spending months dismissing the inflation surge as “transitory,” Federal Reserve officials began raising interest rates in March. The central bank has boosted its short-term borrowing rate six times in all, pushing the benchmark up to a targeted range of 3.75%-4%.

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