November CPI: Take It with the entire salt shaker
|Summary
The November CPI report creates more questions than answers about the recent pace of price growth. Consumer prices rose 2.7% in the 12 months ending in November, materially below our expectations for a 3.0% gain. The core index similarly fell short of expectations, advancing 2.6% over the past 12 months versus our forecast for a 2.9% increase. The stark miss comes on the heels of the longest-ever government shutdown that led the BLS to skip October data collection and not begin the November collection process until the middle of the month.
As such, we caution against reading too much into today's report. The November data suggest core prices rose 0.16% over the past two months, or an average of 0.08% per month. For comparison, the core index has increased at an average monthly pace of 0.25% this year. CPI data are not revised, and as a result we believe the data will be noisy for at least another month or two. A bounce back in prices in the December CPI report to be released on January 13 is probably coming. Through the noise, we believe inflation is slowing on trend, even if today's reading overstates the magnitude of the slowdown. We remain comfortable with our current projection of rate cuts from the FOMC in March and June of next year.
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