WASHINGTON (Reuters) – U.S. consumer prices rose by the most in seven months in November, but that is unlikely to stop the Federal Reserve from cutting interest rates for a third time next week amid a cooling labor market.
The consumer price index rose 0.3% last month, the biggest increase since April, after rising 0.2% for four straight months, the Labor Department’s Bureau of Labor Statistics said Wednesday. In the 12 months to November, the CPI rose 2.7%, after rising 2.6% in October.
Economists polled by Reuters had forecast the CPI to rise 0.3% and 2.7% on an annual basis.
The annual increase in inflation has slowed significantly from a peak of 9.1% in June 2022. Nevertheless, progress in reducing inflation towards the US central bank’s 2% target has virtually stalled in recent months came.
However, the Fed is now focusing more on the labor market. Although job growth accelerated in November after being severely limited by strikes and hurricanes in October, the unemployment rate rose to 4.2% after remaining at 4.1% for two months in a row.
On Wednesday, financial markets saw a roughly 86% probability of a 25 basis point rate cut during the Fed’s Dec. 17-18 policy meeting, according to CME Group’s FedWatch Tool.
However, fewer interest rate cuts are expected next year than was expected a few months ago.
While slower inflation is forecast next year due to a moderation in rents and increasing labor market slack, this could be offset by higher prices due to tariffs and mass deportations promised by newly elected President Donald Trump.
“From a fundamental standpoint, we don’t see any material upside risk to inflation,” said Stephen Juneau, an economist at Bank of America Securities. “That said, progress on inflation should stagnate next year given our expected changes in rates, fiscal and immigration policies.”
Excluding volatile food and energy components, the CPI rose 0.3% in November, rising by the same margin for the fourth month in a row.
In the twelve months to November, the so-called core CPI rose by 3.3%. That followed similar progress in October.
The Fed initiated the monetary policy easing cycle in September. The key daily rate is now between 4.50% and 4.75% and has been increased by 5.25 percentage points between March 2022 and July 2023 to keep inflation under control.
(Reporting by Lucia Mutikani, Editing by Nick Zieminski)
