November 2023 Inflation Eases to 3.1% as Gas Prices Drop Significantly

Diccon Hyatt is a seasoned financial and economic journalist who has extensively covered the pandemic-era economy with clear, accessible insights. His reporting focuses on how economic trends affect personal finances and markets. He has also contributed to U.S. 1, Community News Service, and the Middletown Transcript.

Key Insights

• The Consumer Price Index (CPI) rose 3.1% year-over-year through November 2023, down slightly from 3.2% in October, confirming a steady inflation decline.
  
• Lower inflation indicates slower price increases, not widespread price drops across most goods and services.
  
• Stable prices enhance the likelihood of avoiding a recession despite the Federal Reserve's aggressive interest rate hikes aimed at curbing inflation.
  
• With inflation trending downward, the Fed may soon ease its rate hike cycle.
  

Inflation continued to moderate in November 2023, easing pressure on household budgets burdened by steep price gains in recent years.

The Bureau of Labor Statistics reported that the CPI increased by just 0.1% month-over-month in November after no change in October. A 6% reduction in gas prices offset rising costs in housing, food, car insurance, medicine, and other essentials. Over the past year, the CPI rose 3.1%, a marked decrease from the 9.1% peak in June 2022, the highest inflation rate since the early 1980s.

This data suggests inflation is on a downward path while the labor market remains favorable to workers, increasing the chances for the economy to achieve a "soft landing" instead of a recession, contrary to many predictions from last year.

However, some inflationary pressures persist. Core inflation, which excludes volatile food and gas prices, remained steady at a 4% annual increase, largely driven by housing costs.

Following the report, stock futures initially rose but later retreated, as the inflation figures aligned closely with economists' expectations according to Dow Jones Newswires and the Wall Street Journal.

Between March and July 2022, the Federal Reserve raised its benchmark interest rate to a 22-year high to temper inflation by curbing spending and balancing supply and demand. The Fed targets a 2% annual inflation rate.

Successfully reaching this goal without triggering a recession is becoming more plausible, though historical data shows eight of the last nine rate hike cycles led to economic downturns. Fed officials have increasingly acknowledged this possibility in recent statements.

The Fed is widely expected to maintain its current interest rate range of 5.25% to 5.5% in its upcoming policy announcement. Market data from CME Group’s FedWatch tool assigns a 98.4% probability to this outcome.

Wednesday’s meeting may also hint at when the Fed might start lowering rates, which would ease borrowing costs on mortgages, car loans, and other credit.

Gasoline prices have played a key role in easing inflation. As of Tuesday, the U.S. average price for a gallon of regular gas was $3.14, nearly 70 cents lower than August, per AAA data. Crude oil prices have fallen sharply this autumn amid concerns over slowing global economic growth reducing demand.

Despite inflation’s recent decline, consumers still face prices for groceries, rent, and essential items well above pre-pandemic levels. The economy is experiencing disinflation—slower price increases—rather than deflation, where prices would actually fall. The Fed aims to sustain disinflation and avoid deflation, which can harm economic activity.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, explained in a recent blog post, “Deflation might sound appealing. After all, who wouldn't want to pay less for groceries next week? But it can be economically destructive. Consumers may delay purchases expecting further price drops, which reduces overall consumption, leading businesses to cut production, profits, and jobs.”

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