New inflation data released for the first time since the government shutdown showed prices unexpectedly slowed in November, but the report may not immediately change the Fed’s outlook due to possible distortions in the data.
“Overall, this looks like good news, but the lack of detail and lack of data collection during the government shutdown raises a level of skepticism that is difficult to ignore,” said Olu Sonora, head of U.S. economic research at Fitch Ratings. “We will need to wait until next month to get a clearer picture of inflation.”
The consumer price index rose 2.7% in November, compared with Wall Street expectations of 3.1%. Excluding volatile food and energy prices, inflation on a “core” basis was 2.6%, compared with expectations of 3%. Core inflation has hovered around 3% for months, leading many at the Fed to worry that inflation has stalled.
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This month’s consumer price index does not include month-on-month data because the government shutdown for a month and a half caused the Bureau of Labor Statistics to cease most price data collection. However, the Bureau of Labor Statistics said both headline and core CPI rose just 0.2% in the two months since September.
Federal Reserve Chairman Jerome Powell warned last week that the central bank would be “skeptical” of November data due to the impact of the government shutdown. In fact, there are major gaps in the data because information was not collected for a month and a half.
Still, many economists believe the latest inflation data shows the central bank is making progress towards its 2% inflation target.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said, “The Fed said it is in ‘wait and see’ mode and today it has to see inflation moving in the right direction. Inflation may still be above target, but today’s data makes further interest rate cuts more likely.”
Although core goods rose 1.4% due to tariffs, falling rents pulled down the headline inflation figure. Services inflation, excluding energy prices, rose 3% – still high but down from 3.5% since September and a category many Fed hawks are watching.
Stephen Miran, a Fed governor appointed by President Trump in September, has repeatedly said he believes the Fed can cut interest rates because rents have fallen. Millan said when rents are included in the calculation of the Consumer Price Index, inflation is lower and any growth from tariffs is undermined, but he hasn’t seen that yet. Thursday’s report underscores Milan’s argument.
