Core CPI rises 3.3% year-on-year
Market confident in December small cut possibility
The U.S. consumer price index (CPI) inflation rate for last month matched market expectations. Although the broad disinflation trend (decline in inflation rate) has halted, prices did not spike significantly, leading Wall Street to be confident that the Federal Reserve (Fed) will cut interest rates by 0.25 percentage points this month.
On the 11th (local time), the U.S. Department of Labor announced that the November CPI rose 2.7% year-on-year. Compared to the previous month, it increased by 0.3%. These figures are 0.1 percentage points higher than the October rates (2.6% year-on-year and 0.2% month-on-month), but all were in line with expert forecasts.
The core CPI, which excludes the volatile energy and food sectors to show the underlying inflation trend, rose 0.3% month-on-month and 3.3% year-on-year. These rates matched both the October figures and market expectations.
The reasons for the sustained CPI inflation include increases in housing costs and food prices. Last month, housing costs rose 0.3% month-on-month, accounting for 40% of the total CPI increase. Food prices increased by 0.4%, with household grocery purchases up 0.5% and dining out up 0.3%. Energy prices rose by 0.2%. Used cars and trucks (2.0%), new cars (0.6%), and medical care (0.4%) also saw increases.
On an annual basis, housing costs jumped 4.7%. Food prices rose 2.4%, while energy prices fell 3.2%.
With last month’s CPI matching market expectations, the market is confident that the Fed will cut interest rates at the Federal Open Market Committee (FOMC) meeting scheduled for the 17th?18th of this month. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market now reflects a 96.4% probability that the Fed will lower rates by 0.25 percentage points at this month’s FOMC. This is a more than 10 percentage point increase from the 86.1% probability just before the CPI announcement. The chance of holding rates steady has dropped to 3.6%.
In response to the Fed’s expected rate cut this month, U.S. Treasury yields have shown a slight decline. The 2-year U.S. Treasury yield, which is sensitive to monetary policy, is trading around 4.13%, down 1 basis point (1 bp = 0.01 percentage points) from the previous trading day.
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