Introduction to November’s Inflation Rate
Inflation in November fell to 2.7%, the Bureau of Labor Statistics said Thursday, a positive sign for consumers on its face. However, November’s data was collected later than normal. The figures released may include significant holiday discounting, which could have put downward pressure on the overall figure.
Analysis of the Data
"It’s possible that this does reflect a genuine drop off in inflationary pressures," said Paul Ashworth, Capital Economics’ chief North America economist. "But such a sudden stop, particularly in the more-persistent services components like rent of shelter is very unusual, at least outside of a recession," he said. Morgan Stanley’s economists concurred, saying that it’s "difficult to draw strong conclusions" from the report. They warned that given the way the BLS processed the report without October data, inflation "could see reacceleration in December."
The Consumer Price Index
Known as the Consumer Price Index, or CPI, Thursday’s release was the first batch of inflation data to be published since the historically-long government shutdown ended in mid-November. The change for the two months of October and November was 0.2%, a figure the BLS typically doesn’t release. The BLS’ statisticians likely had to make a number of adjustments in order to generate many of the figures throughout Thursday’s announcement.
Price Changes in Different Categories
Some of the most significant easing in prices happened in the categories of food and what BLS calls "shelter," which includes both rent and mortgages. In September, prices in the food category were rising at a 3.1% annual rate. In Tuesday’s release that’s slowed to 2.6%. Housing was increasing at an annual rate of 3.6% in September. In November, that slowed to 3.0%. Energy prices, however, have soared 4.2% over the last 12 months. “The index for electricity increased 6.9% over the last 12 months,” the BLS said.
Public Concerns and Federal Reserve’s Decision
Americans consistently report that inflation and everyday costs are the most pressing economic issues they face: 44% of adults chose “inflation and the rising cost of living” as their top concern in an NBC Decision Desk poll released Sunday. The data could also be a green light for the Fed to continue interest rate cuts. Stocks initially started the day sharply higher, but as of 12:30 p.m. ET, the S&P 500 was up only 0.5% and the Nasdaq Composite was higher by only 1.1%.
Skepticism and Future Data
Some experts expressed early skepticism of November’s inflation data. JPMorgan analysts said last week in a note that they expected the data to be “more uncertain” and “incomplete” because BLS was unable to collect most of the data for October. Federal Reserve chair Jerome Powell said the central bank would need to look at the latest data with a “somewhat skeptical eye” due to the abnormal way the data was collected. December’s inflation data is expected to come out in mid-January. The next batch of data is likely to give a fuller picture of changing prices, because the data will have been collected normally.
Conclusion
In conclusion, while the November inflation rate of 2.7% may seem like a positive sign for consumers, it is essential to consider the unusual circumstances surrounding the data collection. The government shutdown and subsequent delay in data collection may have affected the accuracy of the figures. As such, it is crucial to approach the data with a skeptical eye and wait for future releases to get a clearer picture of the inflation trend. The Federal Reserve’s decision to cut interest rates and the potential impact on the economy will also be closely watched in the coming months.
