U.S. Inflation Slows to 7.1% in November 2023: What It Means for Interest Rates
In November 2023, U.S. consumer inflation eased more than expected, signaling potential moderation in Federal Reserve rate hikes amid rising shelter and food costs but falling energy prices.
The Consumer Price Index (CPI) increased by 7.1% year-over-year in November, down from 7.7% in October, marking the slowest annual inflation rate since December 2021.
November's inflation data revealed a slower rise in consumer prices than anticipated, boosting hopes that the Federal Reserve might temper its aggressive interest rate hikes that have pushed borrowing costs to near 15-year highs.
Monthly CPI growth was just 0.1%, significantly lower than the expected 0.3%, and down from 0.4% increases in the prior two months. This deceleration reflects a cooling from the peak 9.1% annual inflation recorded in June, the highest in over four decades.
Core inflation, which excludes food and energy due to their volatility, rose 0.2% month-over-month and 6% year-over-year, easing from 6.3% in October and below analysts' forecasts of 6.1%. This marks the slowest core inflation surge since July 2023.
Key Insights
- CPI rose 0.1% in November, with a 7.1% year-over-year increase—the lowest since late 2021.
- Core inflation slowed to 6% annually, down from 6.3% in October.
- Shelter costs led inflation growth, while food prices continued rising steadily; energy prices declined, exerting downward pressure.
- Slowing inflation may encourage the Federal Reserve to moderate upcoming interest rate hikes.
Inflation Drivers by Category
Shelter expenses increased 0.6% from October and 7.1% year-over-year, representing the largest inflation contributor last month. Food prices rose 0.5% monthly and 10.6% annually, slightly slower than October's 10.9% and well below the August peak of 11.4%.
Energy costs dropped 1.6% in November after a 1.8% rise in October, though they remain 13.1% higher year-over-year due to significant price surges in early 2023. Energy prices peaked in June but have since declined alongside crude oil and other commodity prices.
Monetary Policy Outlook
The easing inflation trend may influence the Federal Reserve’s upcoming decisions. The Federal Open Market Committee (FOMC) is expected to raise the benchmark federal funds rate by 50 basis points to a 4.25%-4.5% range—the highest since 2007. The Fed aims to achieve a 2% inflation target to maintain price stability and support full employment.
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