U.S. Inflation: What to Expect from November CPI Numbers?

Paigambar Mohan Raj
Source: ET Retail

The U.S. Federal Reserve will release its November CPI (Consumer Price Index) numbers today at 8:00 am ET (eastern time). According to experts, consumer inflation probably cooled in November. Nonetheless, prices continued to rise at high rates.

According to Dow Jones, November CPI rose at an annual pace of 7.3%, lower than October’s 7.7%. Core CPI is expected to grow by 0.3% or 6.1% year-over-year. In October, core CPI increased by 0.3% gain, or an annual rate of 6.3%, according to Dow Jones.

The Federal Reserve will release the November inflation data today before beginning its two-day meeting. The Fed is most likely to maintain its 50 basis point rise even if the CPI numbers come in higher than expected. The central bank is widely anticipated to raise rates by a half percentage point on Wednesday afternoon. FED chair, Jerome Powell, will deliver his customary post-meeting press conference at 2:30 p.m. ET on Wednesday.

Mark Cabana, head of U.S. rate strategy at Bank of America Merrill Lynch, stated,

“I think if the market sees something in line, all is good. If the theme holds, rates [bond yields] probably still decline a bit. But if we see something that surprises to the upside, I think that would generate a more sizeable market response because it would be questioning the theme the market has really latched on to — which is that inflation has peaked.”

Interest rate hikes even with cooler inflation

According to economists, the Fed will continue hiking interest rates until the fed funds target rate approaches 5% or higher. Currently, the fed funds goal range is between 3.75% and 4%. Even if hotter or colder CPI data is unlikely to influence the Fed’s decision for this meeting, economists believe it may provide insight into the longer-term trajectory of interest rates.

Since Powell recently brought this up, markets will be focused on inflation that originates from services, ignoring real estate.

According to Aneta Markowska, the chief financial economist at Jefferies,

Powell pretty much told us last week that we know core goods will continue to slow. We know housing will eventually slow as the decline in market rents eventually comes through. The one piece we don’t have confidence in slowing is core services ex-housing.”

Diane Swonk, the chief economist at KPMG, believed that the inflation numbers are going to be colder. The data is unlikely to be reflected in the Fed’s quarterly predictions, which are anticipated Wednesday afternoon, according to Swonk. However, a hotter or weaker number might still affect subsequent Fed communications. Swonk predicted that the data could remain erratic and uncertain regarding the direction of inflation.