Inflation as measured by the CPI is up in November. Month-over-month, the all-items CPI inflation rose from 2.97% in October to 3.82% in November. A more modest rise in this measure of inflation was recorded on a year-over-year basis, from 2.58% (October) to 2.73%. Our measure of trend CPI inflation popped up half a percentage point, from 2.31% to 2.81%. As we have emphasized in the past, our trend measure is smoother than the monthly inflation rate while at the same time responding in a more timely fashion to changes in trend than the annual inflation rate.
The situation is broadly similar when looking at inflation based on core CPI (excluding food and energy). While the year-over-year core CPI inflation rate is essentially unchanged at 3.30%, the month-over-month rate rose from 3.42% to 3.76%. Our trend measure is up nearly 0.2 percentage points, from 3.18% to 3.37%.
While, the FOMC mainly focuses on inflation as measured by the core PCE price index, this measure of inflation, and that measured by the CPI, tend to move together. The best that can be said of the November CPI report is that year-over-year core CPI inflation was unchanged. This observation is of little comfort given that October’s year-over-year core PCE inflation rate was 2.80% — well above the Fed’s stated 2% target. In an earlier post on the October PCE inflation results, we pointed out that comments from FOMC members have raised expectations for a December rate cut; given the negative inflation picture painted by the October PCE, we asked whether the committee would defy those expectations. As we see it, inflation has not been brought to heel. Our recommendation: no change in the Fed funds rate target at the December meeting, and start preparing the public for the possibility of raising this rate in the future to bring inflation well and truly down to target.
