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HomeMarketNovember's CPI Inflation Report Is Coming. What to Expect.

November’s CPI Inflation Report Is Coming. What to Expect.

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Inflation likely cooled in November from the prior month, and from the year-ago period. That should be welcome news to investors and the Federal Reserve, which has raised interest rates by 3.75 percentage points this year in an aggressive effort to arrest the rise in prices.

The Bureau of Labor Statistics will report November’s consumer price index (CPI) reading on Tuesday at 8:30 a.m. Economists surveyed by FactSet expect that CPI, a measure of the prices consumers pay for goods and services, climbed at a 7.3% annual pace in November, compared with a 7.7% rate in October. On a monthly basis, CPI is seen rising by 0.3% in November, compared with October’s 0.4% gain.

Core inflation, excluding food and energy prices, likely ticked up by 0.3% for the second consecutive month, and by 6.1% year over year, down from a 6.3% annual increase in October.

“We project November’s core CPI increase will confirm the slowdown that was observed in October,” UBS economist Pablo Villanueva wrote in a recent research note. “Unlike March and July when inflation slowed to around 30 basis points [0.30 of a percentage point] and then jumped back up the next month, we are not seeing high-frequency and front-month leading indicator data suggesting an inflation rebound.”

Notwithstanding a continued slowdown in the rate of inflation, prices remain historically high. CPI rose at a 9.1% annual pace in June, which marked this year’s peak and the largest 12-month increase since November 1981.

Tuesday’s CPI report, the last one of the year, follows last week’s reading on November producer prices, which rose by 0.3% in the month and 7.4% year over year, exceeding expectations. Both reports likely will factor into the Fed’s deliberations at its two-day policy meeting, which begins Tuesday. On Wednesday the U.S. central bank is expected to announce another increase in interest rates aimed at restraining still-hot inflation.

The Fed has raised interest rates by three-fourths of a percentage point at four of its five meetings so far this year. Fed Chairman Jerome Powell has suggested that the Fed might hike rates by only 50 basis points at its December meeting. According to the CME Fed Watch tool, 74.7% of traders currently expect a half-percentage-point rate hike later this week.

If inflation comes in hotter than expected, the Fed might feel the need to hike rates more aggressively next year, possibly tipping the economy into recession. “Traders will get their final look at CPI this year as they digest whether we are on the right inflation trend and if it’s enough to alleviate recession fears,” Chris Larkin, a managing director at E-Trade, wrote Monday. 

A strong CPI report, on the heels of last week’s PPI reading, could unsettle the markets.

“We expect a substantial market reaction in the event of either an upside or downside surprise to November core CPI released Dec. 13, just ahead of the final FOMC [Federal Open Market Committee] meeting for 2022,” wrote Citi economist Veronica Clark.

Write to Angela Palumbo at angela.palumbo@dowjones.com

Credit: marketwatch.com

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