The November inflation report reveals a slight increase in the Consumer Price Index (CPI), rising to 2.7% year-over-year, up from 2.6% in October. While this marks a modest acceleration, economists remain cautiously optimistic, pointing to underlying trends suggesting a continued path towards disinflation. Despite increases in key areas like groceries, gasoline, and new cars, the overall picture remains nuanced, with several counterbalancing factors at play. This report presents a complex reality: inflation remains “stubbornly sticky,” but positive economic indicators suggest the worst may be behind us.
Key Takeaways: November Inflation Report
- CPI rose to 2.7% year-over-year in November, a slight increase from October’s 2.6% but still significantly lower than the 9.1% peak in June 2022.
- Food prices saw a “bounce back,” driven by factors such as avian flu (significantly impacting egg prices).
- Transportation costs, especially new vehicle prices and airfare, contributed to inflation but appear to be stabilizing.
- Housing costs, a major component of the CPI, continue to decline, showing signs of easing inflationary pressures.
- Economists remain divided, with some emphasizing persistent strength despite improvements in underlying economic trends.
A ‘Bounce Back’ in Food Prices
While inflation has retreated considerably from its pandemic-era highs, certain categories continue to present challenges. The November report highlighted a notable jump in grocery inflation, rising from 0.1% in October to 0.5% in November. This surge was partly fueled by a significant increase in egg prices, jumping approximately 8% in November alone and a staggering 38% year-over-year, a direct consequence of the avian flu outbreak. While economists acknowledge the volatility inherent in food prices, they emphasize the importance of monitoring this category, particularly given its significant impact on household budgets. “We saw a bounce back in food prices,” noted Mark Zandi, chief economist at Moody’s. “Part of it is avian flu: Egg prices continue to be very strong.” He cautioned that while one month of elevated grocery inflation shouldn’t spark immediate alarm, it requires close observation.
The Importance of Monitoring Food Prices
The impact of food price fluctuations on consumer spending is undeniable, given that groceries represent a substantial portion of many households’ expenditure. Sustained increases in these prices could significantly impact consumer sentiment and spending habits, potentially influencing broader economic outcomes. This emphasizes the need for ongoing vigilance and analysis of food price trends to predict future inflation patterns and inform policy decisions.
Cars and Housing: Persistent Trouble Spots
Beyond food, other sectors continue to exert upward pressure on inflation. The transportation sector, encompassing vehicle prices and airfare, remains a concern. New vehicle prices increased by 0.6% from October to November, reflecting lingering effects of past supply chain disruptions. However, economists like Joe Seydl, a senior markets economist at J.P. Morgan Private Bank, believe this volatility is temporary as the market rebalances. The impact extends to auto insurance, where increased vehicle replacement costs due to higher car prices translate to elevated premiums. “Car prices feed into motor vehicle insurance: When prices are elevated, insurers’ cost to replace vehicles after a car accident is also much higher,” Seydl explained. The lag in insurance premium adjustments due to regulatory processes adds to this sector’s continued influence on overall inflation.
Airfare, another component of the transportation sector, also displays a complex picture. While actual fares are now roughly at pre-pandemic levels, Seydl noted significant volatility within the data. Airline prices too are expected to find a relatively stable bottom as significant supply chain strains affecting the air industry has calmed.
Health Care and Labor Costs
The health-care sector represents another persistent challenge. Labor costs are the primary driver of health-care inflation, and despite generally easing wage growth across the economy, a persistent labor shortage within health care keeps price strength “pretty resilient,” according to Seydl. Medical care service prices rose a notable 0.4% between October and November, representing a 4% year-over-year increase.
Housing’s Continued Influence
The housing market, the largest component of the CPI, continues to impact overall inflation readings, accounting for 40% of the monthly CPI increase in November. However, there are positive signs. The shelter index exhibited a significant decrease, increasing just 4.7% year-over-year — the smallest annual increase since February 2022. Inflation for both rent and owners’ equivalent rent also saw substantial improvements, indicating a slower rate of increase. This softening in the housing market contributes significantly to the overall disinflationary trends observable in the data.
Economists’ Perspectives: Disinflation or Sticky Inflation?
Despite the slight uptick in the November CPI, a consensus of economists points toward a continued move towards disinflation, while acknowledging the stickiness of current inflation levels. “We still think we’re on the overall path of disinflation,” stated Seydl, emphasizing that the recent “revival” in inflation is not a cause for major concern. Zandi, however, while not seeing an acceleration, described inflation as “persistently too strong.” This divergence highlights the complexities of interpreting economic data and the ongoing debate within the field. Yet, the prevailing viewpoint remains optimistic, emphasizing the positive underlying trends and positive signals from the labor market.
The Federal Reserve’s target inflation rate hovers around 2%, and while the CPI is one key indicator, the Fed primarily uses the Personal Consumption Expenditures (PCE) price index. The divergence between these measures, and the complexity of interpreting both measures, makes clear the need for sustained attention and analysis of the many interacting components of inflationary pressures. The Federal Reserve’s actions – and indeed the path of the U.S. economy in 2025 – will depend on how these various factors continue to interact in the coming months. The slight uptick in November’s CPI report serves as a reminder that achieving this goal will likely require continued vigilance and, potentially, further adjustments to monetary policy.
