WASHINGTON (AP) — An inflation gauge that is closely watched by the Federal Reserve barely rose last month in a sign that price pressures cooled after two months of sharp gains.
Friday’s report from the Commerce Department showed that prices rose just 0.1% from October to November. Excluding the volatile food and energy categories, prices also ticked up just 0.1%, after two months of outsize 0.3% gains.
The milder inflation figures arrive two days after Federal Reserve officials, led by Chair Jerome Powell, rocked financial markets by revealing that they now expect to cut their key interest rate just two times in 2025, down from four in their previous estimate. Stickier inflation, Powell said, “might be the single biggest factor” causing the central bank to reduce the number of rate cuts it envisions. Fewer Fed rate cuts would likely mean that mortgage rates and other consumer borrowing costs would remain elevated.
Friday’s data did contain one sign of still-persistent inflation: Year-over-year inflation edged up to 2.4% in November from 2.3% in October and above the Fed’s 2% inflation target. But year-over-year “core” prices, which exclude volatile food and energy costs, were unchanged at 2.8%. The Fed pays closer attention to the core figures, which are regarded as a better sign of where inflation is likely headed.
The modest monthly inflation figures in Friday’s report point to one likely reason why the Fed was willing to cut its benchmark interest rate Wednesday: Its preferred inflation gauge, known as the personal consumption expenditures price index, is coming in lower — and closer to the Fed’s target — than the higher-profile consumer price index. The core CPI, for example, was 3.3% in November.
Friday’s report also showed that consumers increased their spending by a solid 0.4% from October to November, a sign that households continue to propel the economy. On Thursday, the government reported that the U.S. economy grew at a healthy 3.1% annual rate last quarter, largely thanks to consumer demand.
“We can break for the holidays with the comfort that the economy’s growth engine is humming along,” Oren Klachkin, an economist at Nationwide Financial, wrote in a client note. “The Fed would like to continue lowering interest rates, but it feels it can’t do so amid what increasingly looks like an elevated inflation and resilient growth environment.”
Incomes also rose 0.3% last month, faster than prices — a trend which, if it continues over time, should help Americans adjust to higher costs.
Powell had said Wednesday that even if Friday’s inflation figures came in unusually low, it would have only a limited effect on the Fed’s outlook.