A key measure of U.S. inflation picked up as expected in November on rising costs for housing, medical care and used cars, reinforcing expectations that the Federal Reserve will raise interest rates next week.
The so-called core consumer price index, which excludes volatile food and energy costs, rose 0.2 percent from the prior month and 2.2 percent from a year earlier, according to a Labor Department report Wednesday. That matched the median estimates in a Bloomberg survey of economists. The broader CPI was unchanged from the prior month, also in line with projections, as energy prices plunged.
The report indicates underlying inflation is steadying around the Fed’s 2 percent goal, without flaring up, as prices get support from the recent pickup in wages as well as higher materials costs amid the tariff war with China. Still, investors and economists are divided about the path of interest rates beyond a widely projected hike at the central bank’s Dec. 18-19 meeting.
While the CPI report “cements a rate hike next week,” the Fed “will have a window to pause in the first half of 2019,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Risks to the Fed’s inflation outlook are weighted to the downside” amid falling energy costs and sliding price expectations, which indicate that “inflation isn’t going to create any more sense of urgency for future hikes,” he said.
November figures for the Fed’s preferred gauge of inflation, a separate measure related to consumption, will be released on Dec. 21. The Fed-preferred index and its core gauge tend to run slightly below the Labor Department’s CPI measures.
The annual core CPI increase was higher than the 2.1 percent reported for October, though overall CPI inflation slowed to 2.2 percent from 2.5 percent. The broader cooling reflected a 2.2 percent monthly drop in energy prices, including a 4.2 percent decline in gasoline, both the biggest decreases since March.
Fed Views
Fed officials have increasingly emphasized they’ll depend on incoming economic data to guide policy. Fed Vice Chairman Richard Clarida recently said it’s “important to monitor measures of inflation expectations to confirm that households and businesses expect price stability to be maintained.”
A couple of items had a relatively outsize impact on the core CPI: Used-car prices rose 2.4 percent from October, the second straight big increase, amid volatility partly resulting from a change in methodology. Much of that was offset by a 2.2 percent drop in prices for wireless phone services, the largest decline since March 2017.
New car prices remained relatively tame: They were unchanged from October, the fourth straight month without an increase.