The Consumer Price Index (CPI) for November, which the Federal Reserve will contemplate in its next interest rate decision, will be analyzed by investors on Tuesday.
Bloomberg projects that the headline inflation rate will be 3.1% when the inflation report is released at 8:30 a.m. ET, representing a marginal deceleration from the annual price increase of 3.2% in October. It is anticipated that consumer prices will exhibit stability for the second consecutive month in comparison to the previous month.
According to Bank of America, lower energy costs likely restrained the headline figures to a lesser annual price increase.
Bloomberg data indicates that, on a “core” basis excluding the more volatile costs of food and petroleum, prices are projected to have increased 4.0% year-over-year in November, matching the annual increase observed in October. Monthly core price increases of 0.3% are anticipated, which is marginally greater than the 0.2% monthly increase in October.
According to economist Michael Gapen of Bank of America US, an increase in prices for “volatile” categories such as used vehicles and away-from-home lodging should result in a “firmer core” following a decline in prices for both of these categories in October.
“We expect used car prices to rise as a result of the temporary increase in wholesale prices that occurred in August and September due to concerns surrounding the UAW strike.” “In the interim, we anticipate an increase in out-of-town lodging, primarily as a result of expectations for a return to the mean following a significant decline in October,” Gapen wrote in a note published on Monday in advance of the report.
Nevertheless, “aside from these swing factors, we expect the data to be relatively supportive of disinflation,” according to the economist.
Should one hike or not trek?
Following a decrease of 2.5% in October, the bank expects energy prices to decline by 3.5% month-over-month in November. The decline will be propelled by the precipitous reduction in petroleum prices that occurred in November.
Despite inflation persistently surpassing the 2% target set by the Federal Reserve, the prevailing sentiment among investors is that a rate hike in December is improbable. This sentiment is particularly pronounced in light of recent dovish statements made by Federal Reserve officials.
Late last month, Christopher Waller, governor of the Federal Reserve, expressed “increasing confidence” that interest rates are adequate to prevent inflation.
According to data from the CME Group, as of Monday afternoon, markets had factored in a nearly 100% probability that the Federal Reserve would maintain interest rates unchanged in December.
A rate reduction is anticipated to commence at the central bank’s March meeting, with the market pricing in an approximately 40% probability of such an occurrence.
In contrast, Bank of America does not anticipate the initial rate cut by the Federal Reserve until June.
“In recent days, the market has priced in a high likelihood of the first cut being in March, particularly after comments from Governor Waller that were perceived to be dovish,” Gapen stated.
