12/13/23, 7:13 AM Rise in US core inflation highlights stubborn price pressures

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US inflation
Rise in US core inflation highlights stubborn price pressures
Metric inched higher in November even though headline rate edged down to 3.1%

While the US economy continues to expand and the labour market remains robust, Federal Reserve rate-setters are watching to
see if inflation is coming down as quickly as hoped © Bloomberg

Claire Jones in Washington and Colby Smith in New York 3 HOURS AGO

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US core inflation rose last month, bolstering arguments by the US Federal Reserve
that interest rates may need to remain on hold for months to come.

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12/13/23, 7:13 AM Rise in US core inflation highlights stubborn price pressures

Figures published on Tuesday, a day before the Fed is expected to vote on

borrowing costs, showed US core prices rose 0.3 per cent during November, while
the year-on-year core rate remained flat at 4 per cent.

The annual core measure, seen as a bellwether for longer-term inflation, strips out
changes in the prices of energy and food.

The headline rate edged lower to 3.1 per cent, in line with expectations and
marginally below October’s 3.2 per cent rate.

After the data’s publication, investors scaled back their expectations for interest
rate cuts.

“The Fed keeps telling us they don’t have confidence that they can say with
certainty that inflation is going to [its target of] 2 per cent anytime soon,” said
Omair Sharif, president of forecasting group Inflation Insights. “I don’t think that
confidence can be there after today’s numbers.”

He added that the figures did not signal “an all clear”.

Analysts took the core inflation data as a sign that the path to bringing the figure
down next year will be a bumpy one.

While the market still anticipates a quarter-point cut in interest rates by next May,
traders trimmed their expectations after the data release.

Fed officials are expected to vote on Wednesday to keep interest rates at their
current range of 5.25 per cent to 5.5 per cent.

US stocks ended higher, with the S&P 500 rising 0.5 per cent to its highest closing
level since January 2022. That leaves it about 3 per cent below its record high from
earlier that month.

The US government bond market appeared calm, with yields on shorter-dated

Treasury notes about flat on the day, while those on longer-dated instruments were
slightly lower.

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12/13/23, 7:13 AM Rise in US core inflation highlights stubborn price pressures

Headline inflation edges down in November, while core inflation

remains level
% change in consumer price index for all urban consumers

Year over year

Enter item to show

10%

8%

Janet Yellen, US Treasury secretary, said Tuesday’s figures confirmed inflation was
coming down “meaningfully”, while President Joe Biden emphasised that, despite
the fall in the consumer price index, unemployment remained below 4 per cent.

“Workers’ wages and household wealth are higher now than they were before the
pandemic, adjusted for inflation,” he said.

The Fed prefers a less volatile metric — the core personal consumption
expenditures index.

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12/13/23, 7:13 AM Rise in US core inflation highlights stubborn price pressures

But Tuesday’s figures, which came more than a fortnight ahead of the PCE data, are
likely to influence how willing Fed chair Jay Powell is to push back on markets’ rate
cut expectations.

The central bank will on Wednesday publish its latest summary of economic
projections, which will be watched closely for signals on how many cuts officials
foresee next year.

The Fed is seeking confirmation that inflation in the services sector is moderating.
But Sharif said prices across the services sector rose 0.44 per cent in November
once housing, energy and food were factored out.

Tuesday’s figures also indicated housing-related costs, as measured by how much

homeowners believe their properties would rent for, rose 0.5 per cent during the
month. This partially offset falls in energy prices and other everyday items.

“Policymakers are likely to retain a hawkish bias given prices continue to rise at an
uncomfortably fast pace, and Fed officials are sensitive to upside risks to inflation,”
said Rubeela Farooqi, chief US economist at High Frequency Economics, a
consultancy.

Strong US jobs data published last week led some investors to revise their
expectations of a round of rate cuts beginning in March.

But Alan Detmeister, a former Fed economist now at UBS, said the latest data was
“consistent with generally slowing inflation”.

He added it was still possible the central bank would cut rates in March to ensure
interest rates did not become too restrictive for households and businesses once
inflation moved closer to target.

Additional reporting by Nicholas Megaw in New York

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