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© Reuters.
By Geoffrey Smith
Investing.com -- Headline inflation in the U.S. fell by more than expected in November to its lowest level this year, bolstering hopes that the Federal Reserve may not have to raise interest rates much further in order to bring it back firmly under control.
Consumer prices rose 0.1% from October and were up 7.1% from a year earlier, the Bureau of Economic Analysis said, as a drop in energy prices took the sting out of another chunky increase in shelter costs. Excluding volatile fuel and energy components, the 'core' CPI index rose 0.2% on the month and 6.0% on the year, representing a clear slowdown from October's 6.3%.
Headline inflation has now fallen for five months in a row but still remains more than three times the Federal Reserve's target level of 2.0%. Analysts expect the year-on-year rate to ease further as the sharp rises in oil and other energy prices at the back end of last year pass out of the calculations. High-frequency data for house prices and traded goods (especially used cars, prices for which fell 2.9% last month) also suggest that near-term price pressures are also starting to abate, albeit from acutely high levels.
The numbers bolstered hopes that the Federal Reserve will be able to soften its guidance on Wednesday when Chair Jerome Powell announces what is expected to be a 50 basis point increase in the target range for fed funds. S&P 500 Futures rose and the dollar fell along with benchmark Treasury bond yields as market participants moved to price in a lower trajectory for U.S. interest rates going forward.
Mike Konczal, director of macroeconomic research at the Roosevelt Institute, said that the report met all three of the key criteria that Powell has made preconditions for slowing the pace of monetary policy tightening: falling goods prices, a peak in house prices and signs of cooling from services prices.
"All three happened, and happened again for the second month in a row," Konczal said
The numbers contrast with the labor market report released two weeks ago, whose strength had hinted at stubborn inflationary pressures across the economy. The economy has added 800,000 jobs in the last three months, giving little indication of the recession that many have said would follow this year's sharp increases in interest rates.
"This is the very definition of a soft landing Powell articulated earlier this year," Konczal said. "It's there if the Fed pauses and let's these positive developments all play themselves out."
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