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MNI US Inflation Insight: Softer Housing Helps Ensure Dec Cut

Inflation was a little stronger than expected in November, but the details helped ensure a Fed cut in December.
Inflation InsightMarketsStory

Executive Summary

  • Core CPI inflation was a little stronger than expected in November on an unrounded basis, at 0.31% M/M vs 0.28% M/M, for a fourth month at a similar monthly pace.
  • However, main rental components surprised materially lower with 0.2% M/M increases, the weighted average of which (0.23% M/M) saw its first month this cycle below its pre-pandemic average of 0.27% (it last tied with this 0.27% increase back in June before surprisingly surging to 0.47% M/M in Aug).
  • The moderation in these rent components is significant. Housing has previously appeared to us to be the main stumbling block in the return to the inflation target. With the labor market increasingly looking like it won’t be a source of inflationary pressure in the near-term (even more so after Tuesday’s productivity revisions), supercore inflation should start to take less precedence.
  • There were some hotter areas though, including a notable pickup in core goods inflation ahead of potential tariffs under Trump’s second term along with grocery prices plus still some stickiness in core services more broadly when looking at the breadth of price pressures.
  • Thursday’s PPI report then followed with a stronger than expected headline increase but nearly all other aspects leaning dovish, especially core PCE implications.
  • Accordingly, core PCE looks more likely to round to 0.1% M/M in November after two months averaging 0.27% M/M for what would be a return to a 2% inflation target-friendly monthly run rate. However, despite that, it still looks to us to have a very good chance of overshooting the median FOMC forecast for Q4 2024.
  • A 25bp cut from the Fed next week is now seen as a lock, but subsequent rate cuts are expected to be very slow with the next fully priced 25bp cut only just about seen by the May 2025 meeting. 

PLEASE FIND THE FULL REPORT HERE:

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Executive Summary

  • Core CPI inflation was a little stronger than expected in November on an unrounded basis, at 0.31% M/M vs 0.28% M/M, for a fourth month at a similar monthly pace.
  • However, main rental components surprised materially lower with 0.2% M/M increases, the weighted average of which (0.23% M/M) saw its first month this cycle below its pre-pandemic average of 0.27% (it last tied with this 0.27% increase back in June before surprisingly surging to 0.47% M/M in Aug).
  • The moderation in these rent components is significant. Housing has previously appeared to us to be the main stumbling block in the return to the inflation target. With the labor market increasingly looking like it won’t be a source of inflationary pressure in the near-term (even more so after Tuesday’s productivity revisions), supercore inflation should start to take less precedence.
  • There were some hotter areas though, including a notable pickup in core goods inflation ahead of potential tariffs under Trump’s second term along with grocery prices plus still some stickiness in core services more broadly when looking at the breadth of price pressures.
  • Thursday’s PPI report then followed with a stronger than expected headline increase but nearly all other aspects leaning dovish, especially core PCE implications.
  • Accordingly, core PCE looks more likely to round to 0.1% M/M in November after two months averaging 0.27% M/M for what would be a return to a 2% inflation target-friendly monthly run rate. However, despite that, it still looks to us to have a very good chance of overshooting the median FOMC forecast for Q4 2024.
  • A 25bp cut from the Fed next week is now seen as a lock, but subsequent rate cuts are expected to be very slow with the next fully priced 25bp cut only just about seen by the May 2025 meeting. 

PLEASE FIND THE FULL REPORT HERE:

Keep reading...Show less