US inflation is easing as consumer prices rise moderately to boost the economy

  • The consumer price index rose 0.1% in November
  • CPI up 7.1% year-on-year, smallest increase in 11 months
  • Core CPI rises 0.2%, up 6.0% from the previous year

WASHINGTON, Dec 13 (Reuters) – U.S. consumer prices rose less than expected for a second straight month in November due to reductions in the cost of gasoline and health care as well as used cars and trucks, leading to the smallest annual increase in inflation at almost a year. year.

Underlying consumer prices rose by at least 15 months, the Labor Department report showed on Tuesday, clearing the way for the Federal Reserve to begin tapering the size of rate hikes on Wednesday.

While Americans still faced higher rental housing costs, economists expected a moderation next year. The report was published as officials at the US Federal Reserve gathered for the year’s final two-day policy meeting.

The Fed, in the midst of its fastest rate-hiking cycle since the 1980s, is expected to raise its overnight benchmark rate by 50 basis points on Wednesday, snapping a streak of four straight 75 basis point hikes. Economists still expected the Fed to maintain its monetary policy tightening campaign at least through the first quarter of 2023.

“The broad improvements provide hope that price pressures are easing and that the Fed will not need to tighten as much next spring,” said Will Compernolle, senior economist at FHN Financial in New York. “But it’s still not quite the ‘convincing’ inflation improvement (Fed Chair Jerome) Powell needs to be convinced the Fed could soon take a break.”

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The consumer price index rose 0.1% last month after rising 0.4% in October. Economists polled by Reuters had predicted that the CPI would increase by 0.3 percent.

Petrol prices fell by 2.0 per cent. The price of natural gas fell, as did the prices of electricity. Food prices rose 0.5%, the smallest since December 2021, after rising 0.6% in October.

The cost of food consumed at home increased by 0.5%, driven by fruit and vegetables, breakfast cereals and non-alcoholic beverages. But meat, fish and eggs cost less.

President Joe Biden welcomed the drop in petrol prices and moderation in food costs ahead of the holiday season.

“Make no mistake, prices are still too high,” Biden said in a statement. “But things are getting better, moving in the right direction.”

During the 12 months to November, the CPI rose 7.1%. It was the smallest advance since December 2021, and followed a 7.7% increase in October. The annual CPI peaked at 9.1% in June, the largest increase since November 1981. Inflation remains above the Fed’s target of 2%.

Stocks on Wall Street rose, with the benchmark S&P 500 (.SPX) hitting a three-month high. The dollar fell against a basket of currencies. US Treasury yields fell.

Vegetables are pictured in a produce store at Reading Terminal Market after the inflation rate hit a 40-year high in January, in Philadelphia, Pennsylvania, U.S. February 19, 2022. REUTERS/Hannah Beier


Annual inflation is partially decreasing as last year’s large increases fall out of the calculation. The Fed’s aggressive monetary policy is also dampening demand. The tamer inflation readings added to recent reports showing improvements in consumer inflation expectations in December.

Excluding the volatile food and energy components, the CPI increased 0.2%. It was the smallest increase in the so-called core CPI since August 2021 and followed a rise of 0.3% in October. The core CPI was limited by the prices of used cars and trucks, which fell 2.9% and were down for a fifth consecutive month.

The prices of new motor vehicles and household furnishings were unchanged. Commodity deflation sets in, with core commodity prices falling 0.5%, the most since April 2020, after falling 0.4% in October. Spending shifts to services and supply chains improve. Businesses have excess inventory, forcing them to discount items to entice holiday shoppers with cash.

There was also good news from services, the largest component of the CPI curve, which rose 0.3%. Healthcare costs fell by 0.5%, reflecting declines in the prices of hospital and related services as well as prescription drugs. Air ticket prices fell, as did hotel and motel accommodation costs.

However, rental prices remained volatile. The owner-equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, rose 0.7% after rising 0.6% in October. Independent rent measures show that rent growth is slowing. It may show up in the CPI data next year.

Core services rose 0.4% and were unchanged excluding rental houses. This price category is seen as a leading indicator of inflation. But prices for other services rose sharply last month, driven by increases in education, communications, personal services and recreation services.

“This group accounts for 30% of core CPI and underscores that with labor costs continuing to rise at a strong rate, inflation is unlikely to resolve in quick succession,” said Sarah House, senior economist at Wells Fargo in Charlotte, North Carolina.

In the 12 months to November, the core CPI rose 6.0% after rising 6.3% in October.

With 1.7 job openings for every unemployed person in October, wages remain high, ensuring the Fed will continue to tighten monetary policy and raise the key interest rate above 5%, where it could stay for some time.

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Economists expect the central bank to increase the estimate for the so-called terminal interest rate on Wednesday from today’s 4.6%. The Fed has increased its key interest rate by 375 basis points this year from near zero to a range of 3.75%-4.00%.

Declining inflation and the prospect of smaller interest rate hikes have given hope that the economy may avoid an expected recession next year or suffer only a mild slowdown.

“The report, assuming further moderation ahead, gives more confidence that the Fed may only need to tap the brakes lightly in the new year to limit this tightening cycle,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. “If so, there will be some ways to increase the chances of a soft landing. We still see a shallow downside.”

Reporting by Lucia Mutikani; Editing by Dan Burns, Paul Simao and Chris Reese

Our standards: Thomson Reuters Trust Principles.

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