Hotels and Eggs Drive US Inflation
US consumer prices rose 0.3% in November, marking the largest monthly increase since April. The increase, which matched economists' expectations, was largely driven by shelter costs and food prices.
Shelter expenses, particularly hotel and motel rooms, accounted for nearly 40% of the CPI increase. Hotel lodging costs jumped 3.7%, the highest since October 2022. Food prices climbed 0.4%, with notable increases in eggs (up 8.2% due to avian flu) and beef prices, though cereal and bakery products saw a record decline of 1.1%.
The annual inflation rate reached 2.7%yoy through November, up slightly from October's 2.6%. While this represents significant progress from the June 2022 peak of 9.1%, core inflation (excluding food and energy) remained steady at 3.3%yoy, showing limited improvement in underlying price pressures.
There were some positive signs in the report. Rent increases slowed to 0.2%, the smallest gain since July 2021, and motor vehicle insurance costs moderated. However, new and used vehicle prices increased, in part due to hurricane damage replacements.
US PPI figures due later will grab market focus with the Final Demand figure expected at 2.6%yoy in November, from 2.4% previously. Despite sticky inflation concerns, markets expect the Fed to implement a third consecutive interest rate cut next week, to a range of 4.25-4.50%.
Looking ahead, inflation pressures may slow as rent costs continue to cool and labour market slack increases. However, some market makers are concerned that potential policies from the incoming Trump administration, including new tariffs and immigration changes, could pose inflationary risks. Treasury Secretary Janet Yellen also warned that the incoming Trump administration's proposed sweeping tariffs could fuel inflation, hurt US competitiveness, and raise household costs. Our view is that tariffs can dampen demand rather than accelerate price increases resulting in lower long-term inflation.
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