United States: Core inflation softens in November; non-core prices firm up
December 13, 2017
Consumer prices rose a healthy 0.4% from the previous month in November on the back of a surge in gasoline prices. The increase was in line with market expectations and followed October’s timid 0.1% increase. Higher energy prices accounted for three-quarters of the price increase, with gasoline prices increasing 7.3% on a month-on-month basis in November. Food prices were steady for a second consecutive month. As a result of November’s pick-up, inflation rose to 2.2%, from 2.0% in October.
Nonetheless, core consumer prices, which exclude food and energy prices, were moderately below market expectations, increasing 0.1% from the previous month in November. This was a notch below the 0.2% month-on-month increase recorded in October and reflected a sharp drop in apparel prices, a smaller increase in the shelter component and soft prices for medical care services. The feeble result led core inflation to slip marginally from 1.8% in October to 1.7% in November.
Core inflation remains one of the measures followed most closely by the Federal Reserve to assess the extent of inflationary pressures in the economy. Against this backdrop, November’s disappointing figure is expected to provide some ammunition for the doves on the Federal Reserve, who argue for a wait-and-see approach on the inflation front. Nonetheless, above-potential growth, a tight labor market and the Republican tax cuts are all likely to stoke inflationary pressures early next year, which could see core inflation picking up.
United States Inflation Forecast
A tight labor market should lead to inflationary pressures building next year. FocusEconomics Consensus Forecast participants expect inflation to average 2.1% in 2018, which is down 0.1 percentage points from last month’s forecast. For 2019, the panel expects inflation to average 2.0%.
Author: David Ampudia, Economist