US inflation edges down to 3.1% in November

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US inflation edged lower to 3.1 per cent for November, bolstering arguments by Federal Reserve officials that interest rates should remain at current levels during the spring.

The headline consumer price index figure fell marginally below October’s 3.2 per cent, in line with expectations.

The annual core measure — which strips out changes in the price of energy and food, and is seen as a bellwether for longer-term inflation — remained flat at 4 per cent. Over the course of November, core prices rose by 0.3 per cent.

The Bureau of Labor Statistics figures come just a day before Fed officials are expected to keep interest rates at their current range of 5.25 per cent to 5.5 per cent.

Rate-setters prefer to watch a less volatile index — personal consumption expenditures — to measure inflation, and are seeking evidence that it is heading back to their 2 per cent target. They also want confirmation that inflation in the services sector, not including rent increases, is moderating.

But this month’s CPI reading was published more than a fortnight ahead of the PCE data, and could influence how willing Fed chair Jay Powell is to push back on markets’ expectations of rate cuts as soon as March.

After the figures were published, investors scaled back their bets on how many interest rate cuts the Fed would make by the end of next year, while still pricing in a first 25 basis point cut by next May.

“Policymakers are likely to retain a hawkish bias given prices continue to rise at an uncomfortably fast pace and Fed officials are sensitive to upside risks to inflation,” said Rubeela Farooqi, Chief US Economist at High Frequency Economics, a consultancy. 

Other shifts in the markets were relatively subdued, with yields on both two year and ten year Treasuries reversing earlier declines in the day.

Strong US jobs data published last week led some investors to revise their expectations of a round of rate cuts beginning in March.

The Fed will on Wednesday publish its latest summary of economic projections. which will be watched closely for signals on how many cuts officials foresee next year.

Additional reporting by Nicholas Megaw in New York

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