Consumer demand for both goods and services remains strong.
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Consumer prices rose 0.8% in November from a month earlier, and the year-over-year rate surged to 6.8%, the fastest annual pace since 1982.
The data puts inflation at a level widely expected to prompt the Federal Reserve to move more quickly to tighten monetary policy. It could also hamper President Joe Biden’s goal of passing a multitrillion-dollar social spending package through Congress before the end of the year, given key lawmakers’ concerns over rising prices.
Economists had expected a 0.7% rise over the month and a 6.7% increase year over year. The November data shows a slight slowdown in the monthly pace of price increases from a 0.9% rate the month before. But the 6.8% year-over-year rise marks a big jump in the annual rate, which was 6.2% in October.
Although the numbers were higher than economists had penciled in, the initial market reaction suggests the rate of price increases wasn’t as bad as some investors may have feared. Bond yields dropped initially, though they soon began to bounce back, and stock-index futures jumped immediately after the data landed. Some 40 minutes after the report, futures on the S&P 500 were 0.8% higher.
Immediately after the news, the CME FedWatch tool, which tracks investors’ expectations for monetary policy via moves in the bond market, showed expectations for three increases in interest rates in 2022 diminished by one percentage point.
“Consumer prices rose by 0.8% m/m in November, taking the annual CPI inflation rate up to a near 40-year high of 6.8% but, with energy prices falling sharply in recent weeks, last month probably marked the peak,” Capital Economics wrote in a research note.
Still, the decline in expectations for rate increases quickly faded away, underscoring that reasons for concern remain. The uptick in the inflation rate in November was “the result of broad increases in most component indexes,” the Labor Department said.
That shows that inflation is spreading beyond the handful of key pandemic-affected sectors that saw the most significant increases this summer, and could be more persistent than initially anticipated.Rising prices for gasoline, shelter, food, used cars and trucks, and new cars were some of the largest contributors to the overall headline increase.
Excluding the more volatile food and energy indexes, the core consumer-price index remained hot. Core CPI rose 0.5% in November from the month before, and the annual rate stands at 4.9%, in line with expectations. The food index rose 6.1% over the year, while the energy index surged 33.3%. Both changes are the largest annual increases in each sector in at least 13 years, the Labor Department said.
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