NEW YORK, Dec 18 (Reuters) – U.S. consumer prices rose less than expected in the year to November, and expectations for a January rate cut from the Federal Reserve inched up slightly as the report was impacted by the extended government shutdown.
The Consumer Price Index rose 2.7% year-on-year in November, the Labor Department’s Bureau of Labor Statistics said on Thursday. Economists polled by Reuters had forecast the CPI advancing 3.1%.
The BLS did not publish month-to-month CPI changes after the 43-day shutdown of the government prevented the collection of October data. The October CPI release was canceled because the price data could not be collected retroactively.
Excluding the volatile food and energy components, the so-called core CPI increased 2.6% after rising 3.0% in September.
MARKET REACTION:
STOCKS: S&P E-minis extended gains and were last up 54.75 points, or 0.8%
BONDS: Treasury yields fell, with the yield on the benchmark U.S. 10-year note down 2.2 basis points to 4.13%
FOREX: The dollar index wakened and was last down 0.12% to 98.25
COMMENTS:
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“Inflation was quite a bit cooler than expected in November. Shelter inflation, the biggest component of CPI, simmered down nicely. Some people will dismiss this report as being more unreliable than usual, but ignore it at your own risk. Other indicators like rent costs and used car prices are consistent with the narrative that the old drivers of inflation aren’t the sources of current inflation.
“The current sources of inflation are very visible, but not a large component of the consumer basket. Commodities, excluding food and energy, make up less than 20% of the CPI basket. Goods price deflation turned to inflation, but even that inflation hasn’t been as bad as feared. The Fed could look at the increase in the unemployment rate and the tame inflation reading as a reason to cut again. They’ll get some confirming or disconfirming evidence with the next releases before their January meeting.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“These are good numbers, and basically the core rate moving to 2.6% on a year-over-year is really good news, and we saw the top line inflation year-over-year down to 2.7%. So this is good news for the Fed, good news for the markets, and this should begin to perhaps indicate the Fed is likely to be more generous going into the new year. In other words, these numbers, if they stick, will pave the way for not one, but possibly two, rate cuts sometime in the first quarter of 2026.”
JAN NEVRUZI, US RATES STRATEGIST, TD SECURITIES, NEW YORK;
“It certainly was a lot softer than pretty much any forecast that I’ve seen, including ours.
“If you think of the two camps within the Fed that are looking at inflation versus labor markets, and you have one side that is saying, well, inflation is not really a problem anymore, I’m a lot more concerned about the labor market, and the other more hawkish side that is saying that inflation is still a problem that we should be thinking very carefully about – I’m sure the latter camp will flag that there are some data collection issues and things like that, but the burden of proof falls on seeing further data that shows that that’s not the case.
“What we have in front of us is much softer inflation. We definitely take it with a grain of salt, but the generated data is the data and until something else comes in, like the December data later on to show the alternative, on net it is a pretty dovish release.
“It’s hard to argue that this is anything but supportive of the view that inflation is going away. And again, I completely agree that compared to a normal month this is certainly a less straightforward release to take at face value, but the data is the data.”
KAY HAIGH, GLOBAL CO-HEAD FIXED INCOME AND LIQUIDITY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK (via email):
“Today’s low inflation reading won’t move the needle for the Fed given how noisy the data is. The canceling of the October report makes month-on-month comparisons impossible, for example, while the truncated information-gathering process given the shutdown could have caused systematic biases in the data. The Fed will instead focus on the December CPI released in mid-January, just two weeks before its next meeting, as a more accurate bellwether for inflation.”
SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL GLOBAL INVESTORS, LONDON (via email):
“November’s inflation undershoot has armed Fed doves with strong ammunition for a January rate cut. It’s just one month of data, and distortions can’t be ruled out, but the sharp drop in annual inflation leaves the Fed with little excuse not to respond to rising unemployment. There’s more data to come before the January meeting, yet this week’s numbers tilt the balance firmly towards the doves. We still expect two cuts in 2026, but today’s CPI print raises the odds that they’ll land in the first half of the year rather than the second.”
JAMIE COX MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA (via email):
“The inflation bump from tariffs is behind us, so the path is now clear for the Fed to lower rates again in January. There is no longer a case for restrictive monetary policy.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NC (via email):
“It always sounds smarter to predict trouble ahead, but this morning’s inflation data was much better than expected. Of course, it’s only one month’s data points and they will likely fluctuate in the upcoming months, but the main concern of Fed officials who are reluctant to keep cutting is that inflation is persistently high and won’t come down if they keep lowering interest rates, and at this point that doesn’t look like it’s the case.
“Given that inflation is significantly lower month-over-month there is clearly room to keep cutting rates in order to support the labor market and if the doves win out then we are likely to see stock prices supported – and move higher – as the Fed continues to lower interest rates while the economy continues to grow.
“While next year will undoubtedly bring new challenges, heading into the end of the year there should be room for the market to move higher as corporate profits are increasing, the GDP is growing and inflation, for now, remains in check.”
(Compiled by the Global Finance & Markets Breaking News team)
