‘Peak Inflation’ For The Win

For the second month in a row, US consumer prices rose less than expected, emboldening bets that inflation in the world’s largest economy has likely peaked.

Headline CPI rose just 0.1% MoM in November, far less than the 0.3% economists expected. Core prices, meanwhile, rose 0.2% from October, likewise cooler than forecast.

The MoM core print was the slowest since August of 2021 (figure below).

Unrounded, the monthly reads on the headline and core gauges were actually below 0.1% and 0.2%, respectively.

Energy gauges declined across the board in November. The 0.2% MoM decline on the electricity index was the first drop since February, while the gasoline gauge resumed declines after rising in October. Every energy index was still up double digits on a 12-month basis.

There’s some tentative evidence of relief on the food gauges. The 0.5% increase in the overall food index last month was the slowest monthly advance since December of 2021, for example (figure below).

Although grocery prices rose more from October to November than they did from September to October, the trend is clearly lower. Both indexes rose double digits on a YoY basis last month, but the 12-month prints appear to have peaked as well.

Needless to say, the shelter index was the largest contributor to the monthly all-items increase. The 0.6% MoM rise on the shelter gauge was the slowest since July, but in a testament to the severity of the situation, that print still counted among the largest monthly increases in three decades. OER rose 0.7% from the prior month.

Notably, a gauge for commodities excluding food and energy continued to tumble, falling 0.5% last month from October, following a 0.4% MoM decline (figure below).

If that’s a proxy for core goods prices, it suggests disinflation.

The used vehicles gauge dropped 2.9% MoM in November. That was the second-largest monthly decline since the 60s.

The medical care services index fell the most on record — again. There’s a data issue there. A gauge of transportation services receded from October, notching the first MoM drop since July. Airfares fell 3%.

Panning back out to the 30,000-foot level, the YoY reads on headline and core were 7.1% and 6%, respectively (figure below). Those were both below estimates.

A six-handle on the headline gauge would be an achievement.

Tuesday’s figures came on the heels of a hot PPI report late last week which worried some market participants. But consumer inflation expectations moderated in both the preliminary results from the University of Michigan’s sentiment survey for December and in the November vintage of the New York Fed’s consumer survey, released on Monday.

To say speculation about possible market reactions to Tuesday’s CPI data was at a fever pitch would be to materially understate the case. Some models suggested stocks could rise by as much as 10% in a single day on a downside surprise, for example. Had the figures come in hot, some worried equities could sink by 5% or more.

If the reaction to October’s cooler-than-expected CPI figures is any indication, the Fed could be left staring at a sizable easing in financial conditions following Tuesday’s numbers. It’ll be left to Jerome Powell to tell investors Wednesday how the Fed views another relatively favorable read on inflation, and, implicitly, how markets should trade it.