Today’s Consumer Price Index (CPI) report shows a slight inflation decline during November.
Key Details
- Consumer prices are still rising, but a recent CPI report showed the slowest growth in the last year.
- Inflation numbers are still at a four-decade high, but the slight decline is some evidence that the Federal Reserve’s attempts to slow inflation are working.
- In November, the CPI reached 7.1%—down from the 7.7% high in October and a 9.1% peak in June.
- Discounting energy and food prices, core CPI rose 6% in November compared to the year before. This is a slight decrease from October’s 6.3%.
- Stock markets rose in reaction to the news.
Why it’s news
With the Fed expected to continue interest rate hikes, a sign that inflation may be slowing is a welcome one. The CPI is a tool used to measure how much consumers are spending on goods and services. Slight decreases indicated that consumers might soon feel some relief.
This year, the Fed’s increases have been at the fastest pace since 1980. A 0.5 percentage point increase is expected on Wednesday, which will bring overall rates to somewhere between 4.25% and 4.5%. These rates will mark the highest levels since December 2007.
Since supply chains and delays caused by the pandemic shutdowns have improved, inflation has begun to lessen. Gas prices have begun to decrease, with some experts expecting the average price to fall below $3 by the end of the year.
Even with the beginnings of improvement, inflation remains high. Low unemployment and continued consumer spending have contributed to persistent inflation. Despite prices growing significantly in the last year, consumers have continued to spend.
Yet it seems that there is some cause for optimism. Treasury Secretary Janet Yellen predicted during a CBS 60 Minutes interview that next year could see significant drops in inflation.
“I believe by the end of next year you will see much lower inflation if there’s not an unanticipated shock,” Yellen says. She added that a recession is not necessary to bring about the change, but also stated that a recession is still possible.
To support her prediction, Yellen pointed to the dropping gas prices, shipping costs, and faster delivery of goods.
The S&P 500 Index and the Nasdaq Composite Index both rose more than 1% after the inflation report was released, as traders view this as an indication that the Fed will only raise rates by 0.5 percentage points tomorrow and not 0.75 percentage points.