The upcoming Consumer Price Index (CPI) report, set to be released on Wednesday, is expected to highlight a slight setback in efforts to tame inflation. Economists anticipate a 12-month CPI inflation rate of 2.7% for November, reflecting a modest increase from October’s 2.6%, based on Dow Jones consensus estimates.
Core inflation, which excludes volatile food and energy prices, is projected to hold steady at 3.3% year-over-year. Both headline and core CPI measures are expected to rise by 0.3% on a monthly basis, suggesting persistent inflationary pressures.
High Costs Remain a Challenge
Despite inflation cooling significantly from its 9% peak in June 2022, the cumulative effects of price increases continue to weigh heavily on U.S. households. With the Federal Reserve targeting a 2% inflation rate, the data underscores that the “inflation dragon,” as Allianz Trade Americas economist Dan North described it, has yet to be fully subdued.
“Inflation is still here, and it doesn’t show any convincing moves towards 2%,” North added.
Key drivers of November’s CPI increase include rising car prices (up 2% monthly), airfares (up 1%), and auto insurance, which has increased 14% over the past year, according to Goldman Sachs.
Fed’s Path Forward: Rate Cuts Still Expected
Despite the lukewarm inflation data, markets overwhelmingly anticipate the Federal Reserve will implement another 0.25% interest rate cut at its Dec. 18 Federal Open Market Committee meeting. Futures markets show an 88% probability of a rate cut, according to the CME Group’s FedWatch tool.
“When the market is locked in like where it is today, the Fed doesn’t want to make a big surprise,” North explained.
The Fed’s approach reflects confidence in a continued disinflationary trend, driven by easing prices in autos, housing rentals, and a softening labor market. However, Goldman Sachs warns that tariffs planned by President-elect Donald Trump could sustain inflationary pressures into 2025.
Looking Ahead: Gradual Decline in Inflation
Goldman Sachs forecasts core CPI inflation to soften to 2.7% in 2025, while the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, is expected to decline from 2.8% to 2.4% next year.
Still, analysts caution that inflation above 2%, combined with robust economic growth near 3%, could limit the Fed’s ability to cut rates aggressively. Market expectations suggest another rate cut may come in March 2025, but further reductions are unlikely throughout the year.
“Two percent to me doesn’t mean just touching 2% and bouncing along,” North emphasized. “It means hitting 2% for a continuous, foreseeable future, and none of that is evident in any of those reports. You don’t really want to cut in that environment.”
