Fueled by used cars, hotel rooms and more expensive groceries, inflation in the United States rose slightly last month, the latest sign that some price pressures remain elevated.
Consumer prices increased by 2.7% in November year-on-year, compared to 2.6% in October. Excluding the volatile costs of food and energy, so-called basic prices increased by 3.3%, like the previous month. Measured month over month, prices rose 0.3% from October to November, the largest increase since April. Core prices also increased by 0.3% for a fourth consecutive month.
Inflation figures released Wednesday by the Labor Department are the last major data that Federal Reserve officials will review before meeting next week to decide on interest rates. The relatively moderate increase in November will probably not be enough to discourage the authorities from reducing their key rate by a quarter of a point. The likelihood of a rate cut next week, as envisioned by Wall Street traders, rose to 98% after the release of Wednesday’s inflation report, according to futures prices tracked by CME FedWatch.
“That’s generally in line with what the Fed would like to see,” said Jason Pride, chief investment strategist at Glenmede, a wealth management firm.
Although big increases for products such as groceries and hotel rooms lifted overall inflation last month, these categories are often volatile. Pride noted that the cost of services, such as rent, car insurance and airfares, fell in November.
Last week, Fed Chairman Jerome Powell suggested that with an overall healthy economy, the Fed could slowly reduce its key rate.
“We’re not there yet on inflation, but we’re making progress,” Powell said. “We can afford to be a little more careful.”
As the labor market cools, Americans’ wage growth has slowed, from an annual pace of nearly 6% in 2022 to about 4% today, a rate almost consistent with inflation at target. by 2% from the Fed. Powell said he doesn’t think the current labor market is a driver of rising prices.
Randy Carr, CEO of World Emblem, a maker of patches, labels and badges for businesses, universities and law enforcement, said he anticipates smaller pay raises, in the range 3 to 5%, compared to what his company did at the height of the crisis. inflation.
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“Things have kind of stabilized,” he said.
Carr’s customers, including the company that makes UPS uniforms, generally won’t accept price increases exceeding 2 percent per year. World Emblem therefore aims to offset the cost of its higher wages through greater manufacturing efficiency.
In September, the Fed cut its benchmark rate, which affects many consumer and business loans, by half a point. This decision was followed by a quarter-point rate cut in November. The cuts lowered the central bank’s policy rate to 4.6%, from a four-decade high of 5.3%.
Although inflation is now well below its June 2022 peak of 9.1%, average prices remain around 20% higher than three years ago – a major source of public discontent that has contributed to the President-elect Donald Trump’s victory over Vice President Kamala Harris. in November.
Food prices jumped last month, reminding consumers that food prices continue to weigh heavily on household budgets. Beef prices jumped 3.1% between October and November and are up 5% from a year earlier.
Egg prices, volatile for more than two years, partly due to avian flu epidemics, rose 8.2% last month. They are almost 38% higher than a year ago.
Gas prices rose 0.6% from October to November, ending a series of declines. However, gas is down more than 8% compared to the previous year. Hotel prices jumped 3.2% from October to November and are 3.7% higher than a year ago.
Used car prices jumped 2% from October to November; new cars increased by 0.6%. These increases may have been fueled by a surge in demand after Hurricane Helen destroyed existing cars in places like North Carolina.
But a key category that has driven up prices showed welcome signs of cooling in November: Rent prices rose just 0.2%, the smallest increase since July 2021. A measure of housing costs has also increased by only 0.2%, the slightest increase since April. 2021.
Fed officials have made clear that they expect inflation to fluctuate on a bumpy path, even as it gradually cools toward its target level. In their speeches last week, several central bank officials stressed that they believed that with inflation falling so far, there was no longer a need to keep their policy rate so high.
Typically, the Fed cuts rates to try to stimulate the economy enough to maximize employment, but not so much as to drive up inflation. But the American economy appears to be in good health. It grew at a healthy annual rate of 2.8% in the July-September quarter, supported by healthy consumer spending. That led some Wall Street analysts to suggest that the Fed didn’t actually need to cut its benchmark rate further.
But Powell said the central bank was seeking to “recalibrate” its rate to a lower level, more in line with more moderate inflation.
One possible problem in the Fed’s efforts to contain inflation is Trump’s threat to impose across-the-board tariffs on U.S. imports — a move that economists say would likely drive up inflation. Trump has said he could impose tariffs of 10% on all imports and 60% on products from China. As a result, Goldman Sachs economists forecast that core inflation would rise to 2.7% by the end of 2025. Without tariffs, they estimate it would fall to 2.4%.
World Emblem, based in Hollywood, Fla., has factories in Georgia and California, but makes about 60 percent of its products in Mexico. President-elect Donald Trump has threatened to impose high tariffs on imports from Mexico. Carr, the company’s CEO, said he would try to offset the impact of the tariffs through a combination of price increases and cuts in research and development.
“I wish we didn’t have to deal with it, but if we have to, we make plans,” he said.