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US consumer prices saw no change in November overall, largely moderated by the steep decline in the price of gasoline. Inflation pressure is holding firm with the cost of healthcare and rent steadily rising.

Key Takeaways

• The Consumer Price Index registered no change in November after a 0.3% increase in October, the weakest in 8 months.
• The CPI rose 2.2% annually through November compared to a 2.5% annual increase through October.
• The less-volatile core-CPI which excludes food and energy prices increased 0.2% in November and in the month prior, with 2.2% annual increase in November and a 2.1% increase the month before.
• The data is in line with economic forecasts for the CPI.

Inflation seems to be on target with falling oil prices and indications of a slowdown in economic expansion both in the US and globally. Gasoline prices fell 4.2% after increasing 3% in October, and gasoline could drop even further with the decline in oil prices seen since October. Brent crude oil prices have fallen almost 30%.

Owners’ equivalent rent of primary residence (the cost of rent or receiving rent) has risen 0.3% in November after a similar gain the month before. Healthcare has increased 0.4% after costs rose 0.2% the month before with strong increases last month in the costs of hospital services as well as prescription medication.

The cost of clothing dropped 0.9% after a 0.1% increase in October, and the prices of wireless telephone services, vehicle insurance, and airline fares all decreased in November.

Yesterday’s report showed a decline in growth of producer prices last month compared to the month before with 0.1% growth in the PPI in November and 0.% in October. Inflation-adjusted pay for non-supervisory workers rose 0.3% in November and 1% annually, the largest annual increase since 2016.

Inflation on Target

The core PCE price index which excludes food and energy and is used by the Federal Reserve as a key inflation measure increased 1.8% annually in October, the smallest gain since February after a similarly low 1.9% increase in September. The index fell in line with the Federal Reserve’s target inflation rate of 2% in March for the first time since April 2012.

The Fed is expected to implement another interest rate hike before the end of the year, with the FOMC meeting minutes released last month showing that the majority of officials agreed that another rate hike was likely to be warranted soon. However, the monetary policy regarding rate hikes in 2019 is less clear.

Expert Outlook

Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc. in West Chester, Pennsylvania, said that while the CPI report cements a rate hike next week, the Fed will have “a window to pause in the first half of 2019”.

“Risks to the Fed’s inflation outlook are weighted to the downside” amid falling energy costs and sliding price expectations, which indicate that “inflation isn’t going to create any more sense of urgency for future hikes,” he said.

Market Reaction

The price of gold has had little reaction to the tame inflation report but is holding modest gains of 0.21% - spot gold is currently trading at $1,244.48/oz with a high of $1,246.13/oz and a low of $1,241.06/0z. Uncertainty regarding Brexit along with the CPI report are both likely factors in the price action.