US Energy Inflation Data to Show Fourth Consecutive Month of Strong Gains

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(Bloomberg) – Forecasters expect the monthly report on US consumer prices to show a fourth straight month of strong inflation, suggesting that progress toward lower inflation is stalling.

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The so-called core consumer price index excluding food and energy was seen rising 0.3% in November from a month earlier, according to the average estimate in a Bloomberg survey. A report due Wednesday from the Bureau of Labor Statistics is expected to show the overall average rose by the same amount.

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The release of the CPI and another producer price report on Thursday will be the last look at inflation data that Federal Reserve officials will have before their policy meeting next week. While traders still widely expect central banks to cut interest rates for a third straight session, a string of strong inflation readings could prompt the Fed to slow the pace of further cuts.

“If the inflation data comes more in line, we expect the Fed to follow through with another cut next week,” said Deutsche Bank AG economists led by Brett Ryan on Monday. “However, we expect that the messages coming out of the meeting will emphasize a more gradual pace of progress.”

Fed Target

Although inflation has come down significantly from the peaks seen after the pandemic, it has been on the sidelines in recent months. With that in mind, policymakers are trying to strike the right balance between ensuring that inflation returns to the 2% target and keeping the economy and labor market operating at a healthy pace.

Although the central bank bases its inflation target on a different metric – the price index of personal consumption expenses – it also pays close attention to the CPI track, especially since it is the first gold standard price report released every month. The November PCE report is due after the Fed meeting.

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What Bloomberg Economics Says…

“We expect rapid price gains in essential goods (0.3% in November vs. used cars). Given the unfavorable seasonality in used cars this fall, it will take a significant monthly price drop to maintain inflationary pressure. We estimate that used car prices rose 1.2% in November (compared to 2.7% previously), the third consecutive improvement following declines for much of the year. New car prices are likely to increase by 0.4% (compared to 0% previously).”

— Anna Wong and Chris G. Collins, economists

To read the full note, click here

Some of the sectors that have typically contributed to the broader trend of inflation have provided little impetus to the decline in inflation in recent months. Most economists expect commodity prices to rise for the third month in November – after a drop in exports for the rest of the year – amid higher costs for used cars and clothing. Home and auto insurance also seem to keep inflation high.

“The final leg of inflation’s journey back to the Fed’s target looks firm and solid,” Wells Fargo & Co economists Sarah House and Aubrey Woessner said in a paper. They expect the road to the Fed’s 2% target to “continue in our 2026 forecast area, with a more transparent entry next year.”

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Trump Effect

The Wells Fargo team and others also argued new inflationary winds could emerge now that President-elect Donald Trump has sealed his return to the White House. Although consumers’ views on the economy and their finances have improved since the Nov. 5 election, some of his campaign promises — including tax cuts and punitive tariffs — appear likely to raise inflation. Some businesses, for example, consider raising prices in anticipation of higher prices.

“From a fundamental perspective, we see no rising risk of inflation: The labor market has stabilized, supply constraints have eased significantly, and inflation expectations remain firm,” Bank of America Corp. economists wrote. Stephen Juneau and Jeseo Park. “Having said that, progress on inflation is likely to stall next year given the expected changes in inflation, finance and immigration policies.”

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