Gasoline Prices Drop, Offsetting Increases in Housing and Medical Care
The consumer price index rose 0.1% in November, slightly more than expected, according to the Labor Department. The increase was mainly driven by a steep drop in gasoline prices, which helped to offset increases in the cost of housing, medical care, and transportation. Prices climbed 3.1% from the same time last year, in line with estimates by Refinitiv economists, but lower than the 3.2% recorded in October. Core prices, which exclude food and energy, climbed 0.3% monthly and 4% annually, aligning with estimates. Despite the moderation, inflation remains well above the Federal Reserve’s 2% target.
401(k) Hardship Withdrawals Surge as Inflation Squeezes Americans
High inflation has created severe financial pressures for most U.S. households, particularly low-income Americans who are disproportionately affected by price fluctuations. The burden of paying more for everyday necessities like food and rent has led to a surge in 401(k) hardship withdrawals. The current CPI report suggests that inflation is on a path towards 2% unless there is an economic shock. However, experts believe a return to 2% in the near term is unlikely.
Gasoline and Airline Ticket Prices Drop, Shelter Costs Rise
Consumers experienced some relief in November as the price of gasoline plunged 6% and is down 8.9% from the same time last year. Airline ticket prices also dropped 0.4% over the month and are down 12.1% compared to a year ago. However, shelter costs, which were the largest contributor to core inflation last month, jumped 0.4% on a monthly basis and remain up 6.5% over the past year. Food prices, a significant reminder of inflation, also remained high, with grocery costs rising 0.1% last month and 1.7% compared to the same time last year.
Fed Expected to Hold Steady on Interest Rates
The Federal Reserve has been closely monitoring the inflation report as policymakers aim to cool the economy through interest rate hikes. However, the latest data solidified expectations that the Fed is done hiking rates. Investors see a nearly 100% chance that interest rates will remain steady at the conclusion of the final meeting of the year. Although the slight pickup in the monthly increase could delay rate cuts in 2024, the Fed’s focus remains on reaching its 2% inflation target. The central bank believes the risk of cutting rates too soon outweighs the risk of keeping them elevated for a longer period.
In conclusion, inflation moderated in November, driven by a drop in gasoline prices, but remained above the Federal Reserve’s target. While some relief was seen in certain areas, such as gasoline and airline ticket prices, other costs, like shelter and food, continued to rise. The Fed is expected to hold steady on interest rates, aiming to reach its inflation target while exercising caution in their monetary policy decisions.