Consumer Prices Look More Tame Into Year-End as Oil and Energy Prices Fall

After a somewhat muted Producer Price Index report for November, the U.S. Department of Labor has released its November reading on the Consumer Price Index. This is inflation at the retail and consumer level, and the numbers inside the report are soft. Consumer prices were unchanged in November compared to a 0.3% seasonally adjusted rise in October.

The core inflation reading, which excludes food and energy, was up by just 0.2% in November. That matched the gain in October and matched the consensus estimate from Dow Jones. On the monthly data, energy prices were down 2.2% (with gasoline down 4.2%) and food prices were up by 0.2%.

Both the headline and core inflation readings were up by 2.2% when compared to November 2017. It is that year-over-year reading that economists use for their annualized inflation readings. The energy index was still up by 3.1% compared to November of 2017, but that was characterized by the Bureau of Labor Statistics report as being the smallest 12-month increase going all the way back to June of 2017. The food index was up 1.4% over the past 12 months.

The Bureau of Labor Statistics reported that the monthly changes in the indexes for medical care, recreation and water and sewer and trash collection showed gains in November. The indexes that showed price contraction in November were in wireless telephone services, airline fares and auto insurance.

The reality is that the drop in oil has helped to curb some of that runaway inflation, and the delay in tariffs may keep inflation at bay even longer. Whether this tempers Federal Reserve Chair Jerome Powell’s ambitions of raising interest rates too much in 2019 remains to be seen, although the bets are still on for a rate hike in December.

It has been no secret that the market thinks the Fed has been far too hawkish, until Powell and other hawkish Federal Open Market Committee (FOMC) members started changing their tone to be a bit less hawkish for their views in 2019 over the past few weeks.

The next decision on interest rates will come out of the two-day FOMC meeting set for December 18 and 19. The last look at the CME FedWatch Tool showed a 78.4% chance for a 0.25% hike to the current 2.00% to 2.25% range for federal funds.

Stay tuned.