US Consumer Prices Post Largest Gain in Seven Months; Cost of Rent Subsidies

• U.S. consumer prices increased by the most in seven months in November, but that is unlikely to discourage the Federal Reserve from delivering a third consecutive interest rate cut next week, against the backdrop of a cooling labour market and rental costs.
• Most of the rise in inflation reported by the Labour Department on Wednesday came from higher food prices as well as more expensive motel and hotel rooms. Rents, which have been the major driver of inflation, increased at the slowest pace since July 2021. That bodes well for the inflation outlook.
• In the 12 months through November, the CPI climbed 2.7% after increasing 2.6% in October. The rise in the CPI was in line with economists' expectations. The annual increase in inflation has slowed considerably from a peak of 9.1% in June 2022. Nonetheless, progress in lowering inflation to the U.S. central bank's 2% target has virtually stalled in recent months.
• The Fed, however, is now more focused on the labour market. Though job growth accelerated in November after being severely restricted by strikes and hurricanes in October, the unemployment rate ticked up to 4.2% after holding at 4.1% for two consecutive months. Excluding the volatile food and energy components, the CPI increased 0.3% in November, rising by the same margin for the fourth consecutive month.
• Despite the lack of progress in the inflation fight, investors took comfort from the moderation in the cost of rent and the fact that the core inflation had not deteriorated.

(Source: Reuters)