The first fresh inflation reading since the government shutdown showed prices unexpectedly eased in November, though the report may not immediately change the Fed’s outlook because of possible distortions in the data.
“This looks like positive news overall, but the lack of details and lack of data collection during the shutdown introduce a degree of skepticism that is hard to ignore,” said Olu Sonola, head of US economic research for Fitch Ratings. “We will have to wait until next month for a clear reading on inflation.”
The consumer price index for November rose 2.7%, compared to Wall Street expectations of 3.1%. On a “core” basis, which strips out volatile food and energy prices, inflation fell to 2.6%, compared to estimates of 3%. Core inflation hovered around 3% for the month, due to concerns among many at the Fed that inflation has stalled.
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This month’s CPI does not include month-to-month data because the government was shut down for a month and a half, halting price data collection by the Bureau of Labor Statistics. However, in the two months through September, the BLS said both headline and core CPI rose just 0.2%.
Fed Chairman Jerome Powell warned last week that the central bank would take a “skeptical eye” on November data due to the impact of the shutdown. Indeed, there were huge gaps in the data, which information was not collected for a month and a half.
Still, many economists think the latest inflation reading shows progress toward the central bank’s 2% inflation target.
“The Fed has said it is in ‘wait and see’ mode, and saw inflation moving in the right direction today. Inflation may still be above target, but today’s data widens the path to more rate cuts,” said Allen Gentner, chief economic strategist at Morgan Stanley Wealth Management.
A drop in rents dragged down the overall inflation number, while core goods rose by 1.4% due to tariffs. Services inflation, excluding energy prices, rose 3% – still high, but down from 3.5% since September and many hawks on the Fed are watching.
Fed Governor Stephen Miran, who was appointed by President Trump in September, has repeatedly said he believes the Fed will cut rates as prices fall. When rents are included in the calculation of CPI, Miron says inflation is lower and cancels out any increase from tariffs, which he doesn’t currently see. Thursday’s report underscored Miran’s argument.
