WASHINGTON – U.S. consumer prices increased solidly in November, which together with labor market strength could support the Federal Reserve’s intention to keep interest rates steady indefinitely after reducing borrowing costs three times this year.
The report from the Labor Department on Wednesday also showed underlying inflation firming last month.
The U.S. central bank held rates unchanged on Wednesday amid expectations the economy will continue to grow moderately next year and unemployment remain low. The Fed again signaled a pause in the easing cycle that started in July when it cut rates for the first time since 2008.
“There are no worrisome deflation undercurrents in this economy and Fed officials do not need to cut interest rates further to boost economic demand,” said Chris Rupkey, chief economist at MUFG in New York.
The consumer price index rose 0.3% last month as households paid more for gasoline and electricity, and food prices increased for a third consecutive month. The CPI advanced 0.4% in October. In the 12 months through November, the CPI shot up 2.1% after gaining 1.8% in October.
Economists polled by Reuters had forecast the CPI climbing 0.2% in November and rising 2.0% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI rose by 0.2%, matching October’s increase. The so-called core CPI was up by an unrounded 0.2298% last month compared to 0.1572% in October. The core CPI was lifted by gains in health care and prices of used cars and trucks, recreation and hotel and motel accommodation.
In the 12 months through November, the core CPI increased 2.3% after a similar gain in October.
The Fed tracks the core personal consumption expenditures price index for its 2.0% inflation target, which is lagging other inflation measures. The core PCE price index rose 1.6% on a year-on-year basis in October and has undershot its target this year.
November PCE price data will be published later this month.
The wide gap between the core PCE price index and core CPI exists because housing and health care have different weightings in each inflation measure. Even with the CPI perking up, the outlook for inflation remains benign.
In a separate report on Tuesday, the Atlanta Fed said its sticky-price consumer price index (CPI), a weighted basket of items that change price relatively slowly, rose 2.6% on an annualized basis in November after increasing 3.3% in October. It was up 2.8% year-on-year in November.
November’s firmer inflation readings followed a report last Friday showing the economy added a robust 266,000 jobs in November and the unemployment rate fell back to 3.5%, its lowest level in nearly half a century. Other data on housing, trade and manufacturing have also been relatively upbeat, and suggested the economy was growing at moderate speed rather than stalling.
“The economy appears well positioned to find its footing and extend the expansion into 2020,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.
In November, gasoline prices rose 1.1% after rebounding 3.7% in October. Prices for food as well as food consumed at home edged up 0.1%. Core goods prices were unchanged last month, despite U.S. tariffs on merchandise imported from China.
The cost of core services rose 0.3% after increasing 0.2% in October. Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.2% last month, matching October’s rise.
The rent index gained 0.3% after edging up 0.1% in October, which was the smallest gain since April 2011. It was lifted by a 1.1% rebound in the cost of hotel and motel accommodation after tumbling 3.8% in October.
Health care costs rose 0.3% in November after surging 1.0% in October, which was the most since August 2016. The cost of hospital services rose 0.3% last month and prices for doctor visits gained 0.1%. But prices for prescription medication slipped 0.1% after surging 1.8% in October.
Apparel prices nudged up 0.1% last month after declining 1.8% in October. Used motor vehicle and truck prices increased 0.6% after rising 1.3% in October. The cost of recreation goods and services increased 0.4%, boosted by rises in the prices of cable and satellite television services and sporting goods.
But new vehicle prices fell for a fifth straight month, likely because of deep discounting by automakers trying to get rid of stocks of older models. There were also decreases in the prices of airline tickets and motor vehicle insurance. The cost of household furnishing and operations was unchanged.