US inflation firms in November; Fed seen on hold

Customers shop during Black Friday sales at a Target store in Chicago, Illinois, US November 29, 2019. — Reuters pic
Customers shop during Black Friday sales at a Target store in Chicago, Illinois, US November 29, 2019. — Reuters pic

WASHINGTON, Dec 11 — US consumer prices increased solidly in November, which together with labour market strength could support the Federal Reserve’s intention not to cut interest rates again in the near term after reducing borrowing costs three times this year.

The report from the Labor Department today also showed underlying inflation firming last month. It came as Fed officials were due to conclude a two-day policy meeting. The US central bank is expected to keep rates on hold. It signaled a pause in October in the easing cycle that started in July when it cut rates for the first time since 2008.

“There are not worrisome deflation undercurrents in this economy and Fed officials do not need to cut interest rates further to boost economic demand,” said Chris Rupkey, chief economist at MUFG in New York.

The consumer price index rose 0.3 per cent last month as households paid more for gasoline and food prices increased for a third consecutive month. The CPI advanced 0.4 per cent in October. In the 12 months through November, the CPI increased 2.1 per cent after gaining 1.8 per cent in October.

Economists polled by Reuters had forecast the CPI climbing 0.2 per cent in November and rising 2.0 per cent on a year-on-year basis.

Excluding the volatile food and energy components, the CPI rose by 0.2 per cent, matching October’s increase. The so-called core CPI was up by an unrounded 0.2298 per cent last month compared to 0.1572 per cent in October. The core CPI was lifted by gains in healthcare and prices of used cars and trucks, recreation and hotel and motel accommodation.

In the 12 months through November, the core CPI increased 2.3 per cent after a similar gain in October.

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2.0 per cent inflation target. The core PCE price index rose 1.6 per cent on a year-on-year basis in October and has undershot its target this year. November PCE price data will be published later this month.

The dollar was little changed against a basket of currencies after the CPI data, while US Treasury prices dipped.

Rising rents

November’s firmer inflation readings followed a report last Friday showing the economy added a robust 266,000 jobs in November and the unemployment rate fell back to 3.5 per cent, its lowest level in nearly half a century. Other data on housing, trade and manufacturing have also been relatively upbeat, and suggested the economy was growing at moderate speed rather than stalling.

In November, gasoline prices rose 1.1 per cent after rebounding 3.7 per cent in October. Food prices edged up 0.1 per cent, rising for a third straight month. Food consumed at home gained 0.1 per cent.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.2 per cent last month, matching October’s rise.

The rent index gained 0.3 per cent after edging up 0.1 per cent in October, which was the smallest gain since April 2011. It was lifted by a 1.1 per cent rebound in the cost of hotel and motel accommodation after tumbling 3.8 per cent in October.

Healthcare costs rose 0.3 per cent in November after surging 1.0 per cent in October, which was the most since August 2016. The cost of hospital services rose 0.3 per cent last month and prices for doctor visits gained 0.1 per cent. But prices for prescription medication slipped 0.1 per cent after surging 1.8 per cent in October.

Apparel prices nudged up 0.1 per cent last month after declining 1.8 per cent in October. Used motor vehicles and trucks prices increased 0.6 per cent after rising 1.3 per cent in October. The cost of recreation goods and services increased 0.4 per cent, boosted by rises in the prices of cable and satellite television services and sporting goods.

But new vehicle prices fell for a fifth straight month, likely because of deep discounting by automakers trying to get rid of stocks of older models. There were also decreases in the prices of airline tickets and motor vehicle insurance. The cost of household furnishing and operations was unchanged. — Reuters

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