Inflation Ticked Up Again In America

U.S. inflation picked up for a second straight month in November on a rise in food and gasoline prices, underscoring that the final stretch of the Federal Reserve’s two-year battle against sharply rising prices has become more challenging.

Consumer prices overall increased 2.7% from a year ago, up from 2.6% in October, according to the Labor Department’s consumer price index, a popular measure of goods and services costs. That’s the second increase following six straight declines and it leaves annual inflation moderately above the Fed’s 2% goal. Economists surveyed by Bloomberg expected a bump to 2.7%

On a monthly basis, costs rose 0.3%, the most since April.

On the streets of America, the debate over inflation is over. Prices are too high and rising too fast, many people say. But policy-makers at the U.S. Federal Reserve largely agree that promoting economic growth is still more urgent that constraining a nascent pick-up in consumer prices.

What is meant by core inflation?

Core inflation, which excludes volatile food and energy items and is watched more closely by the Fed, increased 0.3% for the fourth straight month. That kept the annual increase unchanged at 3.3% for a fourth month.

The Fed focuses on such sustained price changes because they’re affected by consumer demand, which the central bank can control with interest rates. By contrast, food and energy prices often vary dramatically since they respond to the price swings of global commodities such as oil and wheat.

“Progress on the inflation front, particularly core inflation, has stalled,” Richard Moody, chief economist at Regions Financial, wrote in a research note.

Is inflation really slowing down?

After hitting a 40-year high of 9.1% in mid-2022, inflation has broadly abated but remained elevated recently. The price of services such as car insurance and repairs keep drifting higher, in part because of higher labor costs and auto prices following the COVID-19 pandemic.

Meanwhile, goods prices that had been falling as COVID-related supply chain snarls resolved have flattened or climbed a bit – a sign the benefits from the fading of the health crisis may have played out.

Still, Barclays expects inflation to resume its descent, falling to 2.1% by spring before President-elect Donald Trump’s threatened tariffs on imports boost price increases back to 2.6% by the end of 2025, assuming he imposes the levies. Core inflation is expected to end next year at 3.1%, also virtually flat, Barclays predicts.

Will the Fed lower rates in December?

Economists don’t expect the stalled progress in the inflation fight to dissuade the Fed from lowering its key interest rate by a quarter percentage point at a meeting next week as it carries out a plan to bring rates closer to normal now that price gains have slowed. But it likely will mean fewer rate cuts next year, economists say.

“We expect the Fed to move off autopilot in January, adopting a more cautious tone, and slowing its pace of cuts to just every other meeting,” Seema Shah, chief global strategist for Principal Asset Management, wrote in a note to clients.

The Fed has lowered its key rate three-quarters of a percentage point since September amid an improving inflation picture. In 2022 and 2023, officials raised the rate from near zero to 5.25% to 5.5% to tame a pandemic-induced spike in prices.

Are food prices still increasing?

Grocery prices leaped 0.5% after a string of mostly flat or small increases this year, the largest rise since January 2023.

Last month, the cost of eggs surged 8.2% amid a two-year bird flu outbreak.  Uncooked ground beef increased 0.5% and bacon rose 0.3%.

More encouraging were drops of 1.3% in bread prices and 0.3% in rice, and flat breakfast cereal costs.

Restaurant prices have continued to climb because of higher labor costs, rising 0.3%.