A man shops at a Target store in Chicago on November 26, 2024.
Kamil Krzaczynski | AFP | Getty Images
A major economic report on Wednesday is expected to show progress in lowering inflation has stalled, although not enough to prevent the Federal Reserve from cutting interest rates next week.
The consumer price index, a broad measure of the cost of goods and services across the U.S. economy, is expected to report 12-month inflation of 2.7% in November, up 0.1% from the previous month, according to Dow. It is said that the points will be accelerated. Jones agrees.
So-called core inflation, which excludes food and energy, is expected to be 3.3%, or unchanged from October. Both indicators are expected to increase by 0.3% from the previous month.
With the Federal Reserve setting the annual inflation rate at 2%, the report will provide further evidence that the high cost of living remains a fact of life for American households.
“When you look at these indicators, there’s nothing to say that the inflation dragon has been slain,” said Dan North, senior economist at Allianz Trade Americas. “Inflation remains present and shows no convincing move towards 2%.”
Along with Wednesday’s release of consumer prices, the Bureau of Labor Statistics is scheduled to release the producer price index, a measure of wholesale prices, on Thursday, which is expected to rise 0.2% for the month.
Progress has stalled, but further reductions
To be sure, inflation has come down significantly from the June 2022 CPI cycle peak of around 9%. However, the cumulative effect of rising prices is burdensome for consumers, especially those at the lower end of the wage scale. Core CPI has been trending upward since July after a series of steady declines.
Still, futures market traders are betting big that policymakers will cut the benchmark short-term borrowing rate again by a quarter of a percentage point when the Federal Open Market Committee adjourns on Dec. 18. There is. Odds of a pullback were nearly 88% as of Tuesday morning. , according to CME Group’s FedWatch measurements.
“When the market is as entrenched as it is now, the Fed doesn’t want to make big surprises,” North said. “So unless there’s a spike that we didn’t foresee, we’re confident the Fed is stuck here.”
According to Goldman Sachs, November’s CPI increase can be attributed to several key areas.
Economists at the company said in a note that auto prices are expected to rise 2% per month, while airfares are expected to rise 1%. Additionally, the rapid growth in auto insurance is likely to continue, with Goldman estimating that it rose 0.5% in November after increasing 14% over the past year.
More difficulties await
The company expects inflation to rise further into next year due to easing in the auto and home rental sectors and a softening labor market, while President-elect Donald Trump’s planned tariffs will likely keep inflation high. I am also concerned that this may happen. 2025.
Goldman expects core CPI inflation to slow next year, but only at a 2.7% level, while the Fed’s target inflation measure, the Personal Consumption Expenditure Price Index, is at its most recent core level of 2.8%. It is expected to rise from 2.4% to 2.4%.
With inflation well above 2% and macroeconomic growth expected to remain near 3%, this is not an environment in which the Fed would normally cut interest rates. The Fed is raising interest rates to suppress demand, which could theoretically force companies to lower prices.
The market expects the Fed to miss the January meeting and potentially cut rates again in March. From there, market prices will only see one, or at most two, reductions in production through the remainder of 2025.
“For me, 2% doesn’t just mean getting to 2% and staying on track. It means getting to 2% for the continued and foreseeable future, but something like that. is not clear in any of the reports,” North said. “I don’t want to cut in that environment.”
