November CPI report is out. We are seeing further relief of consumer prices across the board. Overall CPI rose 0.1% in November vs. 0.4% in October while the core CPI rose 0.2% in November vs 0.3% in October. Overall CPI YoY rose 7.1% in November vs. 7.7% in October. Core CPI YoY rose 6.0% in November vs. 6.3% in October. In general, this is positive news. With this CPI report, there’s no compelling reason for the Fed to make another 75 basis point hike. But it’s also unlikely for them to step on the brake and to only raise 25 basis points when the tightening is finally working. Chances are the Fed will raise the federal fund rate 50 basis points tomorrow.
This report is concise and the key points are summarized in the beginning of the reports as follows:
The index for shelter was by far the largest contributor to the monthly all items increase, more than offsetting decreases in energy indexes. The food index increased 0.5 percent over the month with the food at home index also rising 0.5 percent. The energy index decreased 1.6 percent over the month as the gasoline index, the natural gas index, and the electricity index all declined. The index for all items less food and energy rose 0.2 percent in November, after rising 0.3 percent in October. The indexes for shelter, communication, recreation, motor vehicle insurance, education, and apparel were among those that increased over the month. Indexes which declined in November include the used cars and trucks, medical care, and airline fares indexes.
The all items index increased 7.1 percent for the 12 months ending November; this was the smallest 12- month increase since the period ending December 2021. The all items less food and energy index rose 6.0 percent over the last 12 months. The energy index increased 13.1 percent for the 12 months ending November, and the food index increased 10.6 percent over the last year; all of these increases were smaller than for the period ending October.
Interestingly, the report also mentioned that cereals, milk, nonalcoholic beverages and bakery products are getting more expensive while meats, poultry, fish, and eggs are getting cheaper. I wonder why highly processed foods are getting more expensive while natural foods are getting cheaper. I suppose it’s a good time to start a low-carb diet. I probably need to do that after all my festive eating during the holidays.
If the next few CPI reports are similar to the November one, I believe inflation fears will start to dissipate and the rate hiking cycle will finally be over. But I don’t believe we will get back to the zero interest rate any time soon. People start to realize that the zero rate policy has serious consequences like over inflated asset prices that turn into speculative bubbles, unaffordable housing prices and high consumer price inflation. A neutral interest rate like 3-4% is probably healthier in the long run.