Inflation increased in November, complicating Fed’s next rate decision

Consumer prices rose 2.7% in November compared to a year ago, ticking upward from the previous month and potentially giving pause to the Federal Reserve as it weighs an interest rate cut expected next week. The reading matched economists’ expectations.

The fresh data marked two consecutive months of rising inflation, extending a bout of accelerated price increases that has reversed some of the progress made in lowering inflation earlier in the year

The inflation gauge makes up the last piece of significant economic data before the Fed announces its next interest rate decision on Dec. 18.

Core inflation — a closely watched measure that strips out volatile food and energy prices — increased 3.3% over the year ending in November, matching the previous month, the data showed.

Food prices rose 2.4% in November compared to a year ago, matching the previous month and marking slower price increases than the overall inflation rate.

Prices fell in November compared to a year ago for an array of household staples like cereal, rice, flour, bread, bacon and seafood.

Over that period, the price of eggs soared more than 37%, however, as a result of an avian flu that has depleted supply. Prices for sugar, butter and pork chops also rose faster than the overall inflation rate.

Inflation has slowed dramatically from a peak of more than 9% in June 2022, but price increases remain slightly above the target rate of 2%.

In recent months, the Fed has cut its benchmark rate three quarters of a percentage point, dialing back its yearslong fight against inflation and delivering relief for borrowers saddled with high costs.

The Fed is expected to cut interest rates by another quarter of a percentage point at its meeting next week, according to the CME FedWatch Tool, a measure of market sentiment.

Over time, rate cuts ease the burden on borrowers for everything from home mortgages to credit cards to cars, making it cheaper to get a loan or refinance one. The cuts also boost company valuations, potentially helping fuel returns for stockholders.

In theory, the policy eases access to funds, stimulates economic activity and boosts demand. But the promise of bolstered consumer strength risks increased prices.

Speaking at a press conference in Washington, D.C., on Thursday, Fed Chair Jerome Powell voiced optimism about the prospects for achieving a “soft landing,” in which the U.S. averts a recession while inflation returns to normal.

“We continue to be confident that with an appropriate recalibration of our policy stance, strength in the economy and labor market can be maintained with inflation moving sustainably down to 2%,” Powell said.

The trajectory of inflation could shift in the coming months. Some economists expect President-elect Donald Trump’s proposals of heightened tariffs and the mass deportation of undocumented immigrants to raise consumer prices.

When asked about the Fed’s potential response to Trump’s policies, Powell said the central bank would make its rate decisions based on how any policy changes impact the economy.

“In the near term, the election will have no effects on our policy decisions,” Powell said. “We don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy will be.”

“We don’t guess, we don’t speculate and we don’t assume,” Powell added.