US consumer prices notch slowest growth in a year

The pace of US consumer price growth moderated more than expected in November to its slowest pace in a year, bolstering the Federal Reserve’s case to slow down the pace of rate rises on Wednesday and sending US stock futures and government bonds soaring.

The consumer price index (CPI) moderated to an annual pace of 7.1 per cent last month, lower than the 7.3 per cent forecasted by economists and down from the 7.7 per cent pace registered in October. That is the lowest level since December 2021.

Compared to the previous month, overall CPI rose 0.1 per cent, less than October’s 0.4 per cent increase.

The “core” measure, which strips out volatile energy and food costs, also declined, rising on an annual basis by 6 per cent. That marked a deceleration from October’s 6.3 per cent increase, despite a 0.2 per cent monthly rise.

The data sent stock market futures and bond prices soaring. Futures tipped the S&P 500 to rise 3 per cent at the opening bell, compared to the 0.8 per cent gain predicted ahead of the release of the consumer price figures. The yield on the two-year US Treasury fell to be 0.16 percentage points lower at 4.23 per cent.

The data, released by the Bureau of Labor Statistics on Tuesday, came at the start of the Federal Open Committee’s final two-day policy meeting of the year.

On Wednesday, the US central bank is set to raise its benchmark policy rate by half a percentage point, breaking a months-long streak of 0.75 point interest rate increases and marking the start of the next phase of policy tightening.

With that increase, the federal funds rate will move up to a new target range of 4.25 per cent to 4.5 per cent, which most officials believe is not high enough to bring inflation back down to the Fed’s longstanding 2 per cent target.

FOMC members and other regional bank presidents are expected on Wednesday to signal support for the policy rate reaching between 4.75 per cent and 5.25 per cent next year and for that level to be maintained until at least 2024. There is likely to be a slight preference for the so-called “terminal” rate settling at between 5 per cent and 5.25 per cent, suggesting interest rates will continue to rise through to at least March.

That compares to the 4.6 per cent peak rate officials anticipated in September, the last time individual forecasts were published. Accounting for the change in expectations is a recognition that inflationary pressures are going to be harder to root out than expected.

Energy and goods prices have begun to slow this year, having previously helped to push up the annual increase in the CPI index to 9.1 per cent in June. But services-related costs have risen at an alarming pace, bolstered in part by an acceleration in wage growth as a result of the surprisingly resilient labour market.

Fed officials have acknowledged that getting inflation under control will require a sustained period of low growth as well as higher unemployment, but have stopped short of forecasting an outright recession. Most economists say an economic contraction will be necessary and anticipate a mild one next year.