US inflation may have picked up last month, though not enough to prevent Fed rate cuts

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WASHINGTON (AP) – Annual inflation in the United States may have risen last month, showing that inflation remains high despite falling from its painful levels in the past two years.

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Consumer prices are expected to have risen 2.7% in November from 12 months earlier, according to a survey of economists by data provider FactSet, up from an annual rate of 2.6% in October. Excluding food and energy costs, the so-called core prices are expected to increase by 3.3% from last year, as in the previous month.

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The latest inflation figures are the last piece of data Federal Reserve officials will consider before they meet next week to decide on interest rates. The small increase won’t be enough to dissuade officials from cutting their key rate on a quarterly basis.

The government will release the consumer price index for November at 8:30 am Eastern time on Wednesday.

The Fed lowered its benchmark rate, which affects most consumer and business loans, by one percentage point in September and by an additional quarter point in November. That cut lowered the central bank’s key rate to 4.6%, down from a fourteen-year high of 5.3%.

Although inflation is now below the peak of 9.1% in June 2022, prices are still higher than they were four years ago _ a major source of public discontent that helped fuel President-elect Donald Trump’s victory over Vice President Kamala Harris in November. . However, most economists expect inflation to continue next year to the Fed’s 2% target.

On a month-on-month basis, prices are believed to have increased by 0.3% from October to November. That would be the biggest increase since April. Core prices are expected to rise 0.3%, again, for the fourth straight month. Among individual items, air fares, used car prices and car insurance costs are all expected to increase sharply in November.

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Fed officials have made it clear that they expect inflation to moderate as it gradually cools back to its target level. In statements last week, central bank policymakers reiterated their belief that since inflation has fallen so far, there is no longer a need to keep their benchmark rate too high.

In general, the Fed cuts rates to try to stimulate the economy enough to increase employment but not so much as to drive inflation higher. But the US economy appears to be in strong shape. It grew at a brisk 2.8% annual pace in the July-September quarter, boosted by healthy consumer spending. That has led some Wall Street analysts to suggest that the Fed doesn’t really need to cut its key rate.

But Chairman Jerome Powell has said the central bank wants to “reset” its rate to a lower level, another one aligned with inflation. In addition, employment has fallen slightly in recent months, raising the risk that the economy may weaken in the coming months. Further rate cuts by the Fed could eliminate that risk.

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Another potential risk to the Fed’s efforts to reduce inflation is Trump’s threat to impose higher tariffs on US imports – a move that economists say could increase inflation. Trump said he would impose a 10% tariff on all imports and 60% on goods from China. As a result, economists at Goldman Sachs have predicted that core inflation will reach 2.7% by the end of 2025. Excluding taxes, they estimate it will drop to 2.4%.

When the Fed meeting ends on Wednesday, it won’t just announce an interest rate decision. Policy makers will also release their latest quarterly economic and interest rate estimates. In September, they announced that rates will be cut four times by 2025. Officials may lower that number next week.

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