Analysis of US November Consumer Price Index (CPI)

The US November CPI has been released. While the headline figure rose 2.7% year-over-year, meeting market expectations, Core CPI remains sticky at the 3.3% level. In this post, we will examine the trends in Shelter costs and service prices—the main culprits of inflation—and analyze how this will impact the Federal Reserve's (Fed) interest rate policy.

US November CPI Analysis: The Last Mile of Inflation Is Bumpy

1. Summary of November CPI Results

The US Consumer Price Index (CPI) for November matched market expectations exactly. While the fact that there were "no surprises" is a relief, it demonstrated once again how bumpy the 'Last Mile' to the inflation target (2%) is going to be.

In particular, the fact that the Core CPI, which excludes volatile energy and food prices, maintained a 0.3% month-over-month increase remains a burden for the Fed.

Category	Actual (YoY)	Forecast (YoY)	MoM
Headline CPI	2.7%	2.7%	0.3%
Core CPI	3.3%	3.3%	0.3%

▶ Reference: Check Original Data from US Bureau of Labor Statistics (BLS)

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2. Why Inflation Isn't Falling: Shelter and Used Cars

The core reason why inflation figures aren't coming down easily lies in the rebound of Shelter costs and goods prices. Looking at the specific components, the following characteristics are observed.

(1) Sticky Shelter Costs

Shelter is the most critical component, accounting for about 35% of the total CPI weight. November shelter costs rose 0.3% month-over-month, contributing to about 40% of the total price increase. While this is a slight slowdown from October (0.4%), it is still higher than what the Fed desires.

(2) Rebound in Goods Prices

Price increases have appeared in the 'goods' sector, which had previously led deflation (falling prices) and contributed to easing inflation. Notably, prices for Used Cars and Trucks jumped 2.0% month-over-month. While this may be temporary, if the downward trend in goods prices halts, the pace of overall inflation reduction will inevitably slow down.

Key Point:
Service inflation (Shelter) remains high, and even goods prices (such as Used Cars), which had been pulling inflation down, have rebounded. This is the main reason why the November CPI rebounded to 2.7%.

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3. The Fed's Dilemma and Market Outlook

Rate Cut: Go or Stop?

This November CPI data was not enough to give the Fed a reason to "stop rate cuts." The market still sees a high probability of a 25bp rate cut at the December FOMC.

• Positive View: Inflation met expectations (No shock), and the labor market is cooling, so the rate cut trend will continue.
• Negative View: Considering the Core CPI has solidified in the 3% range (3.3%), the pace of rate cuts next year could be much slower than market expectations.

Chair Jerome Powell maintains the stance that decisions will be made "carefully based on data." This CPI report doesn't block a December cut, but it has made the rate cut path for 2025 more uncertain.

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4. Conclusion: Champagne?! Put It Away for Now

The November CPI showed that it is still too early to pop the champagne saying "Inflation is over." From an investor's perspective, keep the following three points in mind.

1. Caution on Volatility: If inflation proves stickier than expected, bond yields could spike again, increasing volatility in the stock market (especially growth stocks).
2. Adjust Rate Cut Expectations: Rather than betting on 'aggressive rate cuts,' it is necessary to build a defensive portfolio while keeping the possibility of 'Higher for Longer' rates open.
3. Sector Selection: Interest is needed in companies with strong cash flows that can withstand high interest rates and assets with inflation-defensive capabilities.

The content of this blog is for reference only for investment judgment, and investment decisions are made under the individual's judgment and responsibility. Under no circumstances can the information in this blog be used as evidence of legal responsibility for investment results.