"Minimal Progress" US November CPI Up 3.1%... 'Super Core' Concerns Persist (Comprehensive)

Last month, the U.S. consumer price inflation rate matched expectations, continuing a slight slowdown. However, the super core inflation, which the Federal Reserve (Fed) closely monitors, approached 4%, highlighting ongoing concerns. Analysts suggest that the Fed will likely keep the benchmark interest rate unchanged at this year’s final Federal Open Market Committee (FOMC) meeting, while drawing a line against excessive market expectations for rate cuts through a 'hawkish' dot plot.

[Image source= Xinhua News Agency]

U.S. November CPI Meets Expectations... Market Reaction Muted

According to the U.S. Department of Labor on the 12th (local time), the Consumer Price Index (CPI) for November rose 3.1% year-over-year, matching the 3.1% forecast by Wall Street experts. This marks a slowdown from the previous month’s 3.2% increase. The October CPI rose 0.1% month-over-month, exceeding the expected 0.0%. The core CPI, which excludes volatile energy and food prices, increased 4.0% year-over-year and 0.3% month-over-month, both in line with market expectations.

Detailed data confirmed a decline in energy prices, including gasoline. Gasoline prices fell by 6% over the month, contributing to a 2.3% drop in energy prices overall. However, housing costs, which account for about one-third of the total CPI, rose 0.4% month-over-month and 6.5% year-over-year. Experts emphasize that slowing housing inflation is crucial to achieving the 2% inflation target. Used car prices also rose for the first time since May.

Ian Linzenn, Head of U.S. Interest Rate Strategy at BMO Capital Markets, evaluated the November CPI report, which broadly met expectations, stating, "There are no details that would immediately impact the Fed’s thinking." Jason Schenker of Prestige Economics commented, "There was only minimal progress in easing inflation."

The market reaction was also muted. On the morning of the report, the New York stock market traded near flat. The two-year U.S. Treasury yield, sensitive to monetary policy, rose slightly, but market expectations for rate cuts in 2024 remained largely unchanged. Bloomberg News reported, "The market’s reaction to the CPI report was generally 'Zzzz (asleep)'," noting a recent pattern of ignoring reports that meet expectations.

[Image source=AP Yonhap News]

Renewed Concerns Over 'Super Core'... Fed Expected to Release Hawkish Dot Plot

However, concerns remain as the so-called 'super core' inflation, which excludes housing costs from the core CPI, shows no signs of easing. According to Bloomberg News, the November super core CPI rose 3.93% year-over-year and 0.44% month-over-month. Fed Chair Jerome Powell has repeatedly emphasized the need to closely monitor super core inflation in the fight against inflation.

Oscar Munoz, U.S. Chief Macro Strategist at TD Securities, pointed out, "While the core CPI broadly met expectations, the details were less helpful," noting that "the super core indicator rebounded from 0.22% in October to 0.44%." Shima Shah, Chief Global Strategist at Principal Asset Management, also remarked, "Month-over-month CPI did not slow, and the super core figures even accelerated," adding, "Given the labor market remains robust, this is not sufficient inflation deceleration to justify market expectations for monetary policy easing."

This CPI report was released on the first day of the two-day December FOMC meeting. The results of the year’s final rate decision will be announced at 2 p.m. on the following day, the 13th. The market expects the Fed to keep rates steady at the current 5.25?5.50%. Linzenn stated, "The super core figures reinforce the need for a hawkish hold," and predicted that the 2024 dot plot will not fully reflect market expectations for rate cuts. Chair Powell is also expected to emphasize in the subsequent press conference that the fight against inflation is not over, aiming to temper market hopes for rate cuts.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures currently price in over a 98% probability that the Fed will hold rates steady at this month’s meeting. The probability of a hold in January next year exceeds 94%. The chances of a rate cut of 0.25 percentage points or more in March or May next year are over 43% and 75%, respectively.

CNBC Survey: "Rate Cuts Starting June Next Year"

A survey released by economic media CNBC on the same day showed that 69% of respondents expect the Fed to begin cutting rates in June next year. This is slower than market expectations. Kasey Bostanich, Chief U.S. Economist at Nationwide, noted, "The market has prematurely priced in a high likelihood of cuts in the first quarter, but we expect cuts to start around mid-next year." He explained that if the Fed pivots to rate cuts too quickly, there is a risk of inflation rebounding as it did in the late 1960s to early 1970s, so Chair Powell is likely to maintain a tighter policy stance longer than expected. Peter Bukva, Chief Investment Officer (CIO) at Blickly Financial Group, predicted, "Chair Powell will be stubborn in maintaining a tighter policy longer than the market expects."

On the other hand, voices supporting a March rate cut next year were also noted. Anna Wong, Economist at Bloomberg Economics, said, "The Fed has made significant progress in disinflation over the past six months. There are also signs that deflation in China is further promoting inflation easing. Short-term inflation expectations have also dropped sharply," forecasting, "The Fed will start cutting rates in March next year."

Short-term inflation expectations, released the day before the CPI announcement, fell to their lowest level since April 2021. According to the November consumer outlook survey by the New York Federal Reserve Bank, the one-year ahead inflation expectation was 3.4%, down 0.2 percentage points from the previous month and below Wall Street’s forecast of 3.8%. The three-year inflation expectation was 3%, and the five-year expectation was 2.7%.

This content was produced with the assistance of AI translation services.