Inflation in the United States saw a slight uptick last month, driven by higher costs for used cars, hotel accommodations, and groceries, indicating that some price pressures continue to be significant.
In November, consumer prices increased by 2.7% compared to the same month last year, a rise from the 2.6% recorded in October. When excluding the more volatile food and energy sectors, core prices also rose by 3.3%, remaining unchanged from the previous month. On a month-to-month basis, prices went up by 0.3% from October to November, marking the largest increase since April. Core prices similarly experienced a 0.3% rise for the fourth consecutive month.
The inflation data released by the Labor Department on Wednesday represents the last major indicator that Federal Reserve officials will review before their upcoming meeting to discuss interest rates. The modest increase in November is unlikely to deter officials from implementing a quarter-point reduction in their key rate. Following the inflation report, the likelihood of a rate cut next week, as anticipated by Wall Street traders, surged to 98%, based on futures pricing monitored by CME FedWatch.
"This aligns closely with the Fed's expectations," stated Jason Pride, chief investment strategist at Glenmede, a wealth management firm.
While significant price hikes in groceries and hotel rooms contributed to the overall inflation last month, these categories are typically subject to fluctuations. Pride pointed out that the costs associated with services, including rents, car insurance, and airline tickets, showed signs of easing in November.
Last week, Fed Chair Jerome Powell indicated that, given the overall health of the economy, the Fed might proceed with a gradual reduction of its key rate.
"We're not fully there on inflation yet, but we are making strides," Powell remarked. "We can afford to adopt a more cautious approach."
As the job market shows signs of cooling, the growth rate of American wages has decreased from nearly 6% annually in 2022 to approximately 4% now, a figure that aligns closely with the Fed's 2% inflation target. Powell has expressed that he does not believe the current job market is a significant factor driving higher prices.
Randy Carr, the CEO of World Emblem, a company specializing in the production of patches, labels, and badges for various sectors including corporations, educational institutions, and law enforcement, indicated that he is implementing smaller wage increases, ranging from 3% to 5%, compared to the more substantial raises seen during the peak inflation period.
"Things have kind of leveled off," he remarked.
Carr noted that his clients, including the manufacturer of UPS uniforms, typically resist price increases exceeding 2% annually. Consequently, World Emblem is focusing on enhancing manufacturing efficiencies to counterbalance the impact of higher wages.
In September, the Federal Reserve reduced its benchmark interest rate by a significant half-point, which influences numerous consumer and business loans. This was followed by a quarter-point cut in November, bringing the central bank's key rate down to 4.6%, a decrease from a four-decade high of 5.3%.
While inflation has significantly decreased from its peak of 9.1% in June 2022, average prices remain approximately 20% higher than they were three years ago, contributing to public dissatisfaction that played a role in President-elect Donald Trump’s victory over Vice President Kamala Harris in November.
Recent data shows that grocery prices surged last month, highlighting the ongoing strain on household budgets due to food costs. Beef prices increased by 3.1% from October to November and are up 5% compared to the previous year.
Egg prices, which have experienced volatility for over two years due to bird flu outbreaks, rose by 8.2% last month and are nearly 38% higher than a year ago.
Gas prices saw a slight increase of 0.6% from October to November, breaking a trend of declines, although they remain over 8% lower than a year ago. Hotel prices rose by 3.2% from October to November and are 3.7% higher than last year.
Used-car prices increased by 2% from October to November, while new car prices went up by 0.6%. These price hikes may be attributed to a surge in demand following Hurricane Helene's destruction of vehicles in areas such as North Carolina.
A significant category that has been contributing to rising prices showed encouraging signs of moderation in November: Rental prices increased by only 0.2%, marking the smallest rise since July 2021. Additionally, a measure of housing costs also saw a modest increase of 0.2%, the lowest since April 2021.
Federal Reserve officials have indicated their expectation for inflation to experience fluctuations along a volatile trajectory, even as it gradually approaches their target level. In recent speeches, several policymakers from the central bank emphasized their view that, given the substantial decline in inflation, there is less necessity to maintain the benchmark rate at its current elevated level.
Typically, the Fed reduces rates to stimulate the economy sufficiently to maximize employment without excessively driving up inflation. However, the U.S. economy appears to be performing well, growing at an annual rate of 2.8% in the July-September quarter, supported by robust consumer spending. This has led some analysts on Wall Street to propose that the Fed may not need to lower its key rate any further.
Nonetheless, Powell has stated that the central bank aims to "recalibrate" its rate to a lower level that aligns more closely with subdued inflation.
One potential challenge to the Fed's efforts to maintain low inflation is Trump's threat to implement widespread tariffs on U.S. imports, a move that economists warn could lead to higher inflation. Trump has suggested he might impose tariffs of 10% on all imports and 60% on goods from China. Consequently, economists at Goldman Sachs predict that core inflation could reach 2.7% by the end of 2025, while without tariffs, they estimate it would decrease to 2.4%.
World Emblem, headquartered in Hollywood, Florida, operates plants in Georgia and California but produces approximately 60% of its products in Mexico. President-elect Donald Trump has threatened to impose significant tariffs on imports from Mexico. Carr, the company's CEO, stated that he would attempt to mitigate the impact of tariffs through a combination of price increases and cuts in research and development.
He expressed, "While I would prefer not to confront this issue, we are in the process of developing plans should it become necessary."