Inflation cooled to 7.1% in November

Inflation continued to slow in November, according to the Consumer Price Index, as price increases across the economy eased up for the second straight month.

Here’s a look at the headline data for November released by the US Bureau of Labor Statistics on Tuesday:

For the month, inflation rose 0.1%, which is down from 0.4% in October.

Year-over-year, the inflation rate was 7.1%, which is the smallest increase since December 2021. It was down from 7.7% in October after spending months above 8%.

Core inflation, which leaves aside volatile food and energy prices, rose 6% year-over-year, down from 6.3% in October. The monthly increase of 0.2% in this measure was the lowest since September 2021.

The results show a second straight month of cooling prices, and were better than economists expected, CNBC reported.

The increase in prices was driven by rising shelter costs such as rent, even as energy prices continued to fall. Notably, gasoline declined 2% for the month, which was a big change from the 4% increase in October.

Food prices continue to rise, as they were up 0.5% for the month, though there was a slight slowing from the 0.6% increase in October. The food at home index, which includes groceries, rose to 12% for the year as four of the six grocery store categories increased.

In key consumer categories, personal care rose 0.7% for the month, while apparel increased 0.2%. Meanwhile, furniture and bedding fell by 0.8% for the month. Toys, which are a particular focus around the holidays, saw prices drop 1.4% for the month.

A second straight month of cooling inflation will cement the idea that prices are beginning to come down from the 40-year-highs reached in the spring and summer. This report will likely boost talk about whether this bout of inflation has peaked.

While there will be some welcome relief in falling gas prices and in many consumer goods, the inflation rate still remains well above what economists and policymakers want to see. This means consumers will continue to see higher prices in everyday life, especially at the grocery store and when they pay rent. Inflation coming down is likely to free up more discretionary funds, but the fact that inflation isn't falling all at once indicates that loosening process may be gradual.

It also means the Fed is unlikely to relent in its posture of hiking interest rates to bring inflation down. The central bank's goal is to get inflation down to 2%. This report indicates the movement is in the right direction, but it may only be the start of a longer period of easing inflation that will be met with the effects of interest rate hikes that are designed to slow down the economy. How these forces interact is likely to be the question of 2023.

Monthly inflation increases, Nov. 2021-Nov. 2022.