Consumer inflation expected to have continued cooling in November but still high

Consumer inflation is likely to cool down in November, but prices continue to rise at a high rate, especially for services.

Economists expect the consumer price index to rise 0.3% in November, or at an annualized rate of 7.3%, according to Dow Jones. That is down from 7.7% in October. Excluding food and energy, core CPI is expected to increase by 0.3%, or 6.1% year-on-year, compared with October’s 0.3% increase, equivalent to a 6.3% year-on-year increase, according to Dow Jones.

The inflation report is expected at 8:30 a.m. ET Tuesday, when the Federal Reserve begins its two-day meeting. The central bank is expected to raise interest rates by half a percentage point on Wednesday afternoon, and economists mostly expect the Fed to maintain a 50 basis point increase even with the hot CPI report. than. One basis point is equal to 0.01 of a percentage point.

“I think if the market sees something in it, all is well,” said Mark Cabana, head of US interest rate strategy at Bank of America Merrill Lynch. “If the subject holds, the rate [bond yields] maybe still down a bit. But if we see something go up all of a sudden, I think that will generate a bigger market reaction because it will question the subject that the market has really been clinging to – which is inflation. culminated.”

Economists expect the Fed to keep raising rates until the federal funds target rate rises to 5% or slightly more. The federal fund’s target range is currently 3.75% to 4%. A hotter or lower CPI report is unlikely to affect this Fed meeting, but economists say it could be a signal about the long-term trajectory of interest rates.

Stocks are higher Monday, and Treasury yields are also higher ahead of Tuesday’s CPI report. Bond yields move inversely with prices. Yields on two-year notes, which reflect Fed policy the most, rose to 4.39% on Monday, up 0.06 percentage points.

Fed Chairman Jerome Powell holds its regular post-meeting news conference on Wednesday at 2:30 p.m. ET, half an hour after the Fed releases its latest policy statement and economic and interest rate forecasts.

“I think it’s going to be another benign print. I’m pretty neutral on this report,” said Aneta Markowska, head of financial economics at Jefferies. “It looks like the risk of being asymmetrically skewed to the high side. I think if you get a higher print, I think [stock] sell-off disproportionately stronger.”

Markets will mainly focus on inflation coming from services, excluding real estate, as Powell highlighted that recently.

Powell told us quite a bit last week that we know core goods will continue to slow down. We know housing will eventually slow down as market rents decline. The part where we don’t believe in slowing down is core housing services, says Markowska.

Economist Jefferies says the composition of the inflation report is key, as it covers sectors driven by wage inflation, such as transportation, health services, education and entertainment. She said core commodity inflation would slow and some price inflation in services would show signs of abating. Hotel prices are one area where inflation could slow, and economists expect pandemic-related price spikes to continue to ease. including in used cars.

“We know that the inflation data is going to be better. It’s going to be cooler. That’s great, but it’s going to have to go into a lot of detail to see where there’s inflation and where it’s not,” said Diane Swonk. , chief economist at KPMG. Swonk said the data is unlikely to be reflected in the Fed’s quarterly forecast, scheduled for Wednesday afternoon. But a hotter or weaker number could still affect other communications from the Fed.

Swonk said, “They’ll separate it when they meet. They’ll discuss it.” “It can obscure the nuanced, tenor voice that Powell holds his press conference.”

Swonk said the data could continue to be harrowing and inconclusive as to where inflation will play out.

“Unfortunately, it’s going to be less definitive than we’d like because we know there’s some bias in that,” she said. “The more important issue is whether there is something going on in the non-shelter service component that is more systemic than what the Fed is looking at.”

Swonk said it’s important to see if there’s a significant downtrend or inflation stabilizing, which would also be positive compared to higher prices.

“We’re going to look at the ones that are most dependent on wages,” she said. “It means looking at everything from restaurant and hotel expenses to hotel rooms, haircuts and personal care.”

The sectors with the most inflation, such as energy, will continue to cool down. Energy was up 1.8% in October.


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