The upcoming US consumer price index (CPI) report is expected to show a 2.7% year-over-year inflation rate for November, reflecting a 0.1 percentage point rise from October and stalled progress in curbing inflation. However, this is not expected to be significant enough to prevent the Federal Reserve from lowering interest rates next week.
Even when focusing on core inflation (core CPI), which excludes food and energy, the forecast remains at 3.3%, unchanged from October. Both measures are expected to show a 0.3% monthly increase, still well above the Fed’s targeted annual inflation rate of 2%.
Additionally, the Bureau of Labor Statistics will release its producer price index, which is expected to show a 0.2% monthly gain. Dan North, senior economist at Allianz Trade Americas, commented that the “inflation dragon” still hasn’t been slain.
Nevertheless, inflation has decreased significantly from 9% in June 2022, but it continues to burden consumers, especially those with low wages. The Core CPI has also been rising again since July after a series of declines.
Normally, with inflation above the Fed’s target and economic growth near 3%, the Fed would raise interest rates to suppress demand and lower prices. However, traders heavily bet that the benchmark interest rate will be reduced by 0.25 percentage points when the Federal Open Market Committee concludes its meeting on December 18.
North added that the Fed will likely stick with its current plan unless something unforeseen causes a drastic change. Despite this, there is speculation that the rate cut will be postponed until March, with one or two additional cuts expected throughout 2025.
Goldman Sachs forecasts that core CPI inflation will decline to around 2.7% next year, while the Fed aims to reduce its personal consumption expenditures price index from 2.8% to 2.4%. However, some concerns remain that President-elect Donald Trump’s planned tariffs could keep inflation elevated in 2025.
