November Inflation Data Expectations
The upcoming Consumer Price Index (CPI) report, set for release on Wednesday, is expected to show that progress in reducing inflation has stalled. However, it is unlikely to deter the Federal Reserve from cutting interest rates next week. According to Dow Jones consensus estimates, November’s annual CPI growth is projected to hit 2.7%, a slight uptick of 0.1 percentage points from October. Core CPI, which excludes food and energy, is expected to remain steady at 3.3%. Both measures are forecast to rise by 0.3% month-over-month.
With the Fed targeting a 2% inflation rate, the report will underscore that high living costs remain a persistent issue for U.S. households. One economist noted, “There’s nothing in the data that suggests the inflation problem has been fully resolved, and price pressures are still evident.”
Key Drivers of Rising Costs
Although inflation has fallen sharply from its peak of 9% in June 2022, the cumulative impact of price increases continues to weigh heavily on consumers, especially lower-income households. Since July, core CPI figures have shown a slight upward trend.
According to Goldman Sachs, November’s CPI increase is expected to stem from several key sectors, including:
- Car Prices: Projected to rise 2% month-over-month.
- Airfares: Expected to increase by 1%.
- Auto Insurance Premiums: Following a 14% annual surge, November is projected to show an additional 0.5% monthly gain.
While Goldman predicts further “disinflation” in 2025 due to easing pressures in the auto, housing, and labor markets, new tariffs proposed by President-elect Donald Trump could counteract these effects, keeping inflation elevated.
Fed’s Policy Direction
Despite inflation not yet reaching the Fed’s 2% target, markets strongly expect the Federal Open Market Committee (FOMC) to cut the benchmark interest rate by 25 basis points at its December 18 meeting. CME Group’s FedWatch tool places the probability of a rate cut at 88%.
Some analysts believe the Fed may pause in January but resume cuts in March. However, others caution that inflation above target, coupled with economic growth near 3%, creates an environment where further rate cuts could undermine efforts to control demand and lower prices.
Outlook and Implications
This CPI report is expected to provide critical insights into the state of U.S. inflation and will significantly influence the Fed’s monetary policy decisions. Following the CPI, the Producer Price Index (PPI) release on Thursday will offer additional clues about inflationary trends.
For forex markets, inflation data could trigger short-term movements in the U.S. dollar, impacting global market sentiment. Traders should closely monitor these developments for potential shifts in market dynamics.
