In November 2024, the U.S. Consumer Price Index (CPI) rose by 0.3% month-over-month, in line with expectations, and climbed 2.7% year-over-year, reflecting the first consecutive annual acceleration since March. Shelter costs remained the largest contributor, accounting for nearly 40% of the CPI increase, though they showed signs of cooling. Food prices also surged, driven by higher costs for beef, pork, and eggs.

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The Producer Price Index (PPI), measuring wholesale prices, increased by 0.4% monthly, exceeding forecasts, and by 3% annually, marking its highest growth rate in nearly two years. Rising costs for goods, including a sharp spike in egg prices due to avian flu, and fresh produce were key drivers.

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These inflationary pressures indicate disinflation may have stalled, complicating the Federal Reserve's path to meeting its 2% target while cutting interest rates. Markets still anticipate a modest rate cut, but persistently high CPI and PPI readings highlight the challenges of balancing price stability with economic growth. Ironically, the higher the Fed rate, the higher the mortgage rate, the higher the shelter cost. The only ways out of high shelter costs are increasing supply, lowering demand, or lowering interest rates.

Rising CPI and PPI Cloud Fed Rate Cut Expectations

While markets anticipate a 25 basis point rate cut in December, the Federal Reserve faces mounting challenges in justifying this move. Policymakers must weigh the risk that persistent inflation, as signaled by rising CPI and PPI figures, could undermine long-term price stability.

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Recent discussions within the Fed have highlighted diverging views on the pace of monetary easing. Some officials emphasize caution, suggesting that elevated inflation metrics may warrant maintaining tighter policy longer. Others argue that early rate cuts could mitigate economic strain, especially if labor market dynamics weaken or external shocks emerge