Summary: US CPI up 0.3% in November, in line with expectations; annual inflation rate ticks up 2.6% to 2.7%; “core” rate up 0.3%, up 3.3% over year; ANZ: services sector seems to be showing evidence of disinflation, although trend is bumpy; US Treasury yields up; rate-cut expectations soften; Westpac: largely be attributable to strong growth in used car and truck prices; non-energy services again main driver of overall result.
The annual rate of US inflation as measured by changes in the consumer price index (CPI) halved from nearly 3% in the period from July 2018 to February 2019. It then fluctuated in a range from 1.5% to 2.0% through 2019 before rising above 2.0% in the final months of that year. Substantially lower rates were reported from March 2020 to May 2020 and they remained below 2% until March 2021. They then rose significantly before declining from mid-2022.
The latest US CPI figures released by the Bureau of Labor Statistics indicated seasonally-adjusted consumer prices increased by 0.3% on average in November. The rise was in line with expectations but up from the 0.2% increase in October. On a 12-month basis, the inflation rate ticked up from 2.6% to 2.7%.
“Headline” inflation is known to be volatile and so references are often made to “core” inflation for analytical purposes. The core prices index, the index which excludes the more variable food and energy components, increased by 0.3% on a seasonally-adjusted basis over the month, in line with expectations as well the rises in the previous three months. The annual growth rate remained steady at 3.3%.
“For core, the services sector seems to be showing evidence of disinflation, although the trend is bumpy,” said ANZ senior economist Adelaide Timbrell.
US Treasury bond yields rose by increasing amounts along the curve. By the close of business, the 2-year Treasury yield had added 2bps to 4.16%, the 10-year yield had gained 5bps to 4.27% while the 30-year yield 6bps higher at 4.48%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months soften, although another three 25bp cuts are still currently priced in. At the close of business, contracts implied the effective federal funds rate would average 4.48% in December, 4.43% in January and 4.29% in February. November 2025 contracts implied 3.78%, 80bps less than the current rate.
“Core goods prices ticked up 0.3% after a lengthy period of disinflation/deflation,” noted Westpac economist Jameson Coombs. “However, this result looks to largely be attributable to strong growth in used car and truck prices as vehicles are replaced following recent severe weather events.” The largest influence on headline results is often the change in fuel prices.
Prices of “Energy commodities”, the segment which includes vehicle fuels, increased by 0.5% and contributed 0.02 percentage points to the total. However, prices of non-energy services, the segment which includes actual and implied rents, again had the largest single effect on the total as they contributed 0.18 percentage points following a 0.3% increase on average.
