Inflation Nation

US inflation accelerated sharply in November, hotly-anticipated data out Friday showed.

Headline CPI rose 6.8% YoY, in line with estimates (figure below). At 4.9%, the core print matched elevated expectations.

These are the hottest inflation readings in decades. For younger Americans, the current conjuncture is quite simply unprecedented.

The monthly print on the headline gauge rose more than expected. The 0.8% gain for November was a tick higher than the 0.7% consensus. The range of estimates from more than six-dozen economists was 0.4% to 1%. On core, the monthly advance was 0.5%, consistent with projections.

Once again, the surge was broad-based. “The monthly all items seasonally adjusted increase was the result of broad increases in most component indexes, similar to last month,” the government said, noting that indexes for gasoline, shelter, food, used cars and trucks, and new vehicles were “among the larger contributors.”

The energy index jumped 3.5% last month on the back of gains in all major components. The gasoline index rose more than 6% for the second consecutive month (figure below).

Mercifully, the monthly increase in electricity prices was the lowest since May. The 0.3% rise came on the heels of a 1.8% leap in October. Utility piped gas prices rose 0.6% MoM compared to October’s 6.6% jump, the largest since 2014.

The food index increased 0.7%. There’s simply no respite on that front. Food at home prices rose another 0.8% MoM.

At the same time, the UN’s gauge of world food prices continues to rise (figure above).

Used cars and trucks posted a second consecutive monthly gain of 2.5%, while new vehicle prices continued to rise as well. Apparel costs rose the most since January.

The shelter index jumped 0.5% on the month, with both the indexes for rent and owners’ equivalent rent posting 0.4% increases.

As expected, “official” housing inflation is catching up to America’s real estate bubble (figure above).

Ultimately, the YoY read on core was the highest since 1991, while the 12-month advance on the headline index was the largest since 1982. That’s problematic. For your house, yes. But for The White House too.

The Biden administration is grappling with what one analyst this week described as a “tier 1 political hot potato.” Although wages are rising and spending remains a semblance of robust, surging prices are eroding consumer sentiment.

Perceptions of buying conditions are among the worst on record and inflation uncertainty is extremely elevated both among consumers (figure on the left, below) and as priced by markets (figure on the right).

On Thursday, The White House did a bit of preparatory damage control. Brian Deese reminded reporters that November’s inflation data doesn’t include the recent drop in energy costs. Deese called November CPI “backward looking,” and said declining prices at the pump, lower natural gas prices and falling shipping costs “are delivering some benefit to consumers on a go-forward basis that won’t be reflected in [the] data.”

As discussed at length here last week, Biden almost surely sees inflation as a bigger liability ahead of the midterms than any prospective stock market weakness that might come about as a result of Fed tightening.

Seen in that context, Biden’s decision to renominate Jerome Powell was very political — it may well have constituted a preemptive endorsement of Powell’s hawkish pivot.

Biden on Thursday released a statement ostensibly to celebrate the plunge in initial jobless claims to a new 52-year low. But the final paragraph was dedicated to November’s CPI report.

“Tomorrow, we will get a report on consumer prices that experts expect to be elevated again, driven in part by energy prices and used car prices,” he said, adding that “the information… does not reflect today’s reality, and it does not reflect the expected price decreases in the weeks and months ahead.”

“Joe clearly has a backup career in inflation forecasting,” BMO’s Ian Lyngen and Ben Jeffery remarked. “Although it’s easy when one gets the numbers ahead of time.”