CPI rose 2.7% With No Surprise, Strengthens Fed Rate-Cut Outlook

The latest Consumer Price Index (CPI) report for November offered no major surprises, aligning closely with economists' expectations. This stability in inflation data further solidifies market bets on a Federal Reserve rate cut in the near future.

CPI and Core Inflation: Stable but Watchful

In November, the CPI rose 2.7% year-over-year, slightly above October's 2.6% but in line with forecasts. On a monthly basis, prices increased by 0.3%, consistent with economists' estimates and marking a slight acceleration from October's 0.2% rise.

Core CPI, which excludes volatile food and energy prices, showed steady growth. It rose 0.3% month-over-month, mirroring October's increase, and climbed 3.3% year-over-year for the fourth consecutive month. Used car prices stood out, rising 2% in November, reflecting a rebound in auction activity.

Market Reaction: Rate-Cut Bets Strengthen

Following the CPI release, markets priced in a 97% probability of a 25-basis-point rate cut at the Federal Reserve's upcoming meeting, up from 89% the day before.

Pre-market trading reflected this optimism: S&P 500 futures rose 0.4%, Nasdaq 100 futures climbed 0.6% and Gold prices increased by 0.6%, crossing the $2,700/ounce threshold.

Category Insights: Shelter Moderates, Food Stays Sticky

Shelter Costs Ease:

The shelter index rose 4.7% year-over-year, slightly below October's 4.9% increase. On a monthly basis, the index rose 0.3%, moderating from October's 0.4%. Rent and owners' equivalent rent both decelerated to 0.2% month-over-month increases.

Food Prices Remain Resilient

The food index increased 2.4% year-over-year, with a monthly rise of 0.4%. Breaking it down, Food at home: Up 0.5%, a notable acceleration from October's 0.1% increase, Food away from home: Climbed 0.3%, maintaining steady growth.

Energy Modest Rebound

The energy index edged up 0.2% month-over-month after remaining flat in October. Year-over-year, energy prices fell 3.2%, a less pronounced decline than October's 4.9% drop.

Other Notable Changes

Recreation, education, personal care, and apparel indexes all showed modest monthly increases.The communication index declined 1%, following drops of 0.6% in both October and September.