Inflation Rises in November, Driven by Shelter and Food Costs

Inflation Rises in November, Driven by Shelter and Food Costs 

The past four months have seen a consistent acceleration in monthly Consumer Price Index (CPI) growth. Analysts had anticipated that November's CPI data would continue this upward trend, predicting a 0.3% increase month-over-month (MoM). Their expectations proved accurate, with November recording the largest MoM rise since April. This increase lifted the year-over-year (YoY) headline CPI to 2.7%, the highest level observed since July, signaling persistent inflationary pressures across various sectors of the economy.

Core CPI, which excludes volatile food and energy prices, also rose by 0.3% MoM as predicted, pushing its annual growth rate to 3.3%. This figure remains significantly above the Federal Reserve's 2% inflation target, underscoring the challenge policymakers face in taming inflation. Since President Biden assumed office, there hasn't been a single month where core consumer prices have declined, highlighting the entrenched nature of current inflationary trends.

Amid this broader inflationary backdrop, there is a glimmer of optimism in what is termed "SuperCore" CPI, which focuses on services excluding shelter. This measure rose by just 0.19% MoM, marking its lowest annual increase—4.3% YoY—since December 2023. Despite this positive development, services inflation remains elevated, and the decline in goods deflation further complicates the economic landscape.

The narrative of persistent inflation is not only evident in the data but has also drawn commentary from prominent financial voices, including the "Fed Whisperer" at The Wall Street Journal, who expressed concern over the renewed surge in inflation. On a three-month annualized basis, the primary force restraining an even sharper CPI increase has been deflation in energy prices. Meanwhile, food costs have surged nearly 4%, compounding household financial pressures.

Delving into the November CPI report, shelter costs were a significant contributor to the monthly inflation increase, rising by 0.3% and accounting for almost 40% of the overall uptick. The food index climbed by 0.4%, driven by a 0.5% rise in the food-at-home category and a 0.3% increase in food-away-from-home costs. Energy prices inched up by 0.2% after remaining unchanged in October, further reflecting the nuanced inflation dynamics across various expenditure categories.

The core inflation figures mirrored this trend, with the index for all items excluding food and energy climbing by 0.3% for the fourth consecutive month. Increases were noted across multiple categories, including shelter, used cars and trucks, household furnishings, medical care, new vehicles, and recreation. A few exceptions existed, such as the communication index, which declined by 1.0% in November following smaller decreases in October and September.

Additional details reveal the depth of price changes across sectors. The shelter index rose by 0.3%, with owners' equivalent rent and general rent indexes each climbing 0.2%, marking their smallest monthly increases since mid-2021. The lodging-away-from-home index surged by 3.2%, reversing October's 0.4% rise. Medical care costs rose by 0.3%, mirroring October's growth, while prices for physician services also increased. Prescription drug costs, however, declined by 0.4%, and hospital services remained unchanged.

Transportation-related costs also saw significant fluctuations. Used car and truck prices rose by 2.0% in November, following a 2.7% increase in October. New vehicle prices and household furnishings both recorded 0.6% increases. Other categories experiencing price hikes included recreation, education, personal care, and apparel.

Over the past year, the core index has risen by 3.3%, with shelter costs up by 4.7%—their smallest annual increase since early 2022. However, specific categories such as motor vehicle insurance saw a dramatic 12.7% rise, medical care increased by 3.1%, education climbed 4.2%, and recreation rose by 1.5%.

Broadly, the resurgence in inflation aligns with the recent uptick in money supply growth, reminiscent of a pre-election surge in liquidity. This phenomenon raises questions about its implications for the economic landscape and the challenges awaiting the next administration. Could this be the economic environment that Donald Trump might inherit should he take office again?

In the context of the ongoing election campaigns, where debates often highlight voter awareness—or lack thereof—of their financial realities, real incomes have seen a stark decline. Since President Biden's election, real incomes have dropped by 3.3% across the board, with only a 2% net increase since the pandemic's onset. This decline becomes even more apparent when adjusted for essential costs like food and fuel, painting a grimmer picture of household financial resilience.

The latest data also raises critical questions for the Federal Reserve, which has emphasized its data-driven approach to monetary policy. With employment remaining robust and inflation showing renewed strength, the case for rate cuts becomes increasingly tenuous. Policymakers are left to grapple with whether this resurgence in inflationary pressures is a temporary blip or a more persistent challenge that demands continued monetary tightening.