US inflation rose to an annual rate of 2.7% in November, up from 2.6% in October, according to Consumer Price Index (CPI) data released on Wednesday by the Bureau of Labor Statistics. The monthly increase was 0.3%, marking the highest annual inflation rate since July.
The figures aligned with market forecasts and reinforced expectations for a Federal Reserve rate cut at its upcoming policy meeting on 18 December. Traders have priced in a 99% chance of a 25 basis point cut, according to CME Group’s FedWatch measure.
If there is a cut, it will mark the third such reduction since September, totalling a full percentage point of cuts.
Rising costs for food, shelter, and vehicles
Shelter costs, which have consistently driven inflation in recent years, rose 0.3% in November. This accounted for nearly 40% of the total CPI increase, though its influence was less pronounced than in previous months when it contributed up to 90% of the monthly increase. The annual rate of shelter inflation now sits at 4.7%, down from a peak of 8.2% in March.
Food prices rose 0.4% for the month, with at-home grocery prices up 0.5%—the largest monthly increase since January 2023. Key contributors included beef, which rose 3.1%, and eggs, which surged 8.2% in November. On an annual basis, egg prices are up 37.5%, with the Bureau of Labor Statistics citing lingering effects from avian flu outbreaks and holiday-driven demand. Cereals and bakery products, however, saw prices fall 1.1%, the largest monthly decline since the index began in 1989.
Energy prices, which had declined for six consecutive months, rose 0.2% in November, reflecting a reversal in that trend.
Prices for new and used vehicles also increased. Used vehicle prices jumped 2%, while new vehicle prices climbed 0.6%, continuing a rebound after prior declines.
Core inflation and market reaction
Market reaction was relatively muted. The US dollar index rose 0.15% following the CPI release, while S&P 500 futures gained 0.5%.
The Fed has been battling inflation with rate increases since 2022. That’s helped to lower headline CPI to its current 2.7% level from 9.1% in June 2022.
But the Fed’s target rate of 2% annual inflation (measured according to the Personal Consumption Expenditures Price Index, but highly correlated to core CPI) might not be feasible in the short term, particularly due to “sticky” items like shelter, medical care, insurance premiums, childcare and utilities. Many of these items are based on annual changes, or adjusted via regulatory decisions, making them less responsive to anti-inflationary measures.
Core CPI, which excludes volatile food and energy components, rose 0.3% for the fourth consecutive month, maintaining an annual rate of 3.3%. This rate has remained unchanged since September, further supporting expectations for a Federal Reserve rate cut.
If inflation is no longer accelerating, markets generally interpret that as a green light for the Fed to shift its focus from fighting inflation to boosting growth, and early rate cuts can prevent the economy from entering a deeper slowdown. Governor Christopher Waller recently said he’d support a rate cut as long as inflation “doesn’t surprise to the upside”.
As 2025 approaches, some analysts have flagged potential headwinds for inflation reduction. These include the possible impacts of new import tariffs, lowered taxes and deportations under President-elect Donald Trump, all of which are seen as likely to raise consumer prices.