November CPI Preview: Barely Budging

Summary

Stalling progress on the inflation fight should be evident in the November Consumer Price Index. We expect headline CPI to advance 0.25% over the month and 2.7% over the past year. The core index should similarly rise around 0.25%, which would keep the 12-month change stuck in the narrow range of 3.2%-3.3% for a sixth straight month. While some key sources of inflationary pressure, such as an overheated labor market, continue to dissipate, new headwinds to disinflation have emerged (e.g., the potential for tariffs and tax cuts) that make the final leg of inflation’s journey back to the Fed’s 2% target look increasingly difficult.

A Bump That Looks Increasingly Long

The stubborn picture of inflation that has emerged over the past few months is unlikely to be altered by the November CPI report. We look for headline inflation to advance 0.25%, which would mark a similar rise to October and push up the 12-month change in prices to 2.7%. After receiving some meaningful respite at the pump since the spring, gasoline prices headed a bit higher in November on a seasonally adjusted basis (+0.2% by our estimates). Meantime, the strength in the producer price index for finished consumer foods the past few months points to CPI food inflation remaining firm. After easing in October, we look for price growth for both food at home and away from home to partially rebound in November, resulting in total food inflation being up 2.2% year-over-year.

Excluding food and energy, inflation is likely to look similarly sticky. We expect the core index to also advance 0.25% in November. This would mark only marginal improvement compared to the past three months’ average increase (0.29%) or the average for the year (0.27%) and leave the three-month annualized rate at 3.4%.

The two-month streak of price increases for core goods is likely to extend to three in another sign that goods deflation is subsiding. Used autos are likely to be the primary driver of another positive print for core goods in November, but remaining core goods prices were likely little changed as seasonal adjustment factors are increasingly positioned for holiday-season discounts to begin in November.

Services inflation should at least ease modestly relative to its recent trend. We estimate core services prices rose 0.32% compared to an average rise of 0.37% the past three months. Shelter prices should come in a little softer than October as the downward trend in owners’ equivalent rent resumes. Lower jet fuel prices in recent months should also bring some relief to airline fares. We expect to see a pickup, however, in categories like motor vehicle insurance and communications due to some reversion to the recent trend, limiting the overall easing in services prices in November.

While inflation has proved stubborn the past few months, it is not as if there have been no signs of progress. The annual change in shelter inflation has slowed to 5.1% from 6.9% this time last year. With the November report, it should drop below 5% for the first time in two and a half years. Meantime, after bubbling up over the winter, the 12-month change in the CPI super core is back on the downswing. Goods prices are no longer falling as rapidly as they were a year ago, but the rate of price changes has at least returned to its pre-pandemic pace.

That said, the final leg of inflation’s journey back to the Fed’s target is looking tougher and tougher. Some key sources of inflationary pressure, most notably labor costs, continue to dissipate, helped by growing signs of a pickup in productivity growth. Yet new headwinds to disinflation have emerged, including the potential for higher tariffs and lower tax rates, which we have incorporated into our forecast. Overall, we expect the fight to get inflation back to the Fed’s 2% target when measured by the core PCE deflator to drag on through our 2026 forecast horizon, with negligible inroads made in the year ahead.