- The U.S. inflation rate dropped to 2.7% in November—the lowest since early 2021—defying economist forecasts of 3%. However, data reliability is questioned due to disruptions from a 43-day federal government shutdown, which forced the BLS to use carry-forward imputation (e.g., estimating unchanged rent prices).
- Mixed CPI signals include: Headline CPI - 2.7% year-over-year (down from September's 3%), core CPI (excluding food/energy) - 2.6%, the smallest rise in nearly three years and shelter costs that slowed (3% annual increase, the lowest in four years), as energy prices surged (4.2%), with electricity up 6.9%.
- The Federal Reserve, which already cut rates three times in 2023, faces uncertainty. Chair Jerome Powell warned that the November data may be distorted, but markets anticipate two more rate cuts in 2024. Analysts caution inflation could reaccelerate in December once normal data collection resumes.
- Despite cooling inflation, 44% of Americans cite inflation as their top economic concern. Food prices remain high (2.6% annual rise) and wage growth lags at 0.8%. Black Friday discounts may have artificially suppressed November's numbers.
- The Fed awaits December data (due mid-January) to determine if the slowdown is genuine or a statistical blip. Economists like Paul Ashworth (Capital Economics) warn such a sharp drop is "very unusual outside a recession." Policymakers remain in a holding pattern, balancing economic support against inflation risks.
The U.S. inflation rate unexpectedly slowed to 2.7% in November, marking the lowest annual increase since early 2021, according to data released Thursday, Dec. 18, by the Bureau of Labor Statistics (BLS).
The decline, which defied economists' expectations of a steady 3% rate, comes after a 43-day federal government shutdown disrupted price data collection, raising questions about the accuracy of the figures. While the cooling inflation offers temporary relief for consumers, Federal Reserve officials remain cautious, weighing the impact of tariffs, labor market fluctuations and potential statistical distortions before making further monetary policy decisions.
During the government shutdown, non-essential federal agencies and services were closed due to a lapse in federal appropriations, forcing furloughs of non-essential employees while essential workers like air traffic controllers labored without pay, BrightU.AI's Enoch notes.
Mixed signals in inflation data
The Consumer Price Index (CPI), a key measure of inflation, showed a year-over-year increase of 2.7% in November—down from September's 3% rise. Core CPI, which excludes volatile food and energy prices, rose 2.6%, the smallest annual gain in nearly three years. However, economists warned that the delayed and incomplete data collection—due to the government shutdown—may have skewed the results.
The BLS employed a statistical method called carry-forward imputation for housing costs, using April 2025 rent data to estimate unchanged October prices. This approach, some analysts say, could mask underlying inflation trends.
"It's possible that this reflects a genuine drop-off in inflationary pressures, but such a sudden stop, particularly in persistent services like shelter costs, is very unusual outside of a recession," said Paul Ashworth, chief North America economist at Capital Economics.
Fed's dilemma: Rate cuts amid uncertainty
The Federal Reserve, which cut interest rates three times in 2023 to support a weakening labor market, now faces conflicting signals. While slowing inflation could justify further rate cuts, Fed Chair Jerome Powell cautioned that November's CPI data "may be distorted" due to the shutdown's disruptions.
Investors initially reacted positively, with the S&P 500 rising 0.8% and Treasury yields dipping, reflecting expectations of at least two more rate cuts in 2024. However, Morgan Stanley economists warned that inflation "could see reacceleration in December" once normal data collection resumes.
Shelter costs, a major driver of inflation, rose just 3% annually—the smallest increase in over four years. Yet, energy prices surged 4.2%, with electricity costs jumping 6.9%, underscoring ongoing pressures on household budgets.
Consumers feel the pinch despite cooling inflation
Despite the dip in headline inflation, Americans continue to grapple with high living costs. A recent NBC poll found that 44% of adults cited "inflation and the rising cost of living" as their top economic concern. Food prices, though easing from September's 3.1% annual rise to 2.6% in November, remain elevated, while wage growth (up just 0.8% year-over-year) struggles to keep pace.
The BLS acknowledged that Black Friday discounts—captured due to late November data collection—may have artificially suppressed prices. Wells Fargo economists noted, "The slowdown was broad-based across nearly all categories, adding to our suspicions that the shutdown's disruptions caused issues in the data."
November's inflation report offers cautious optimism but comes with significant caveats. The Fed's next move hinges on December's data, due in mid-January, which will provide a clearer picture of whether the cooling trend is sustainable or a statistical anomaly.
For now, policymakers remain in a holding pattern—balancing the need to support economic growth against the risk of reigniting inflation. As Ashworth noted, "We all have to wait until the December data is published to verify whether this is a blip or genuine disinflation." Until then, consumers and investors alike will watch closely for signs of where prices—and interest rates—are headed next.
Watch the video below where a Trump official touts the "slowed" inflation.
This video is from the NewsClips channel on Brighteon.com.
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