US November CPI edges past forecasts on energy price gains

Higher energy prices last month saw the cost of living in the US accelerate last month to a one-year high.

According to the Department of Labor, the year-on-year rate of increase for headline consumer prices picked up from 2.0% in October to 2.1% for November (consensus: 2.0%).

In comparison to the month before, headline CPI increased by 0.3%, led by a 0.8% jump in energy prices.

At the core level however, which excludes both food and energy, prices were better-behaved, despite increased prices for used cars and trucks as well for medical care services.

Core CPI registered an advance of 0.2% on the month and 2.3% on the year, with prices for used cars and trucks rising by 0.6% and those medical care services by 0.4%.

Nonetheless, as recently as October, the rate of increase for the US central bank's preferred inflation gauge, the price deflator for core personal consumption expenditures, stood at just 1.6% year-on-year - having run below its target level of 2.0% for roughly seven years.

"Muted gains in clothing and drug prices, and a decline in new vehicle prices, meant that overall core goods prices were flat on the month. That underlines the continued lack of upward pressure on prices from tariffs on Chinese imports," said Andrew Hunter, senior US economist at Capital Economics.

"The continued stability of unit labour costs growth suggests that core inflation will ease over the coming quarters. But even if inflation did threaten to rise above the Fed’s 2.0% target for the PCE measure, all the signs are that officials would be in no rush to start raising interest rates again."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, called attention to the unexpected rise in hospital services of 0.3% on the month, following a 1.4% "leap" in October.

"The jury was still out," he said, but added that hospitals' finances were under pressure from rising labour costs and decreases in Medicare/Medicaid reimbursement rates.

"Overall, core CPI inflation is trending at about 2-1/4%, but the y/y rate will rise in the first half of next year due to a combination of base effects, tariff pass-through and, perhaps, sustained upward pressure in healthcare services," Shepherdson said.

"Nothing very terrible is likely, but core inflation could easily hit 2.5% by early spring, for the first time since September 2008."

Following the release of the above figures, as of 1409 GMT the yield on the benchmark 10-year US Treasury note was dipping by one basis point to 1.83%.