United States: Overall CPI Edges Up Slightly Again Month-over-Month

Overall inflation was up only slightly month-over-month, but the fight against inflation appears to have stalled. The all items index fell sharply from 3.7% in September to 3.2% in October. November's decline was much more modest. The picture is even less rosy when we look at core inflation, which held steady between October and November. Despite hopes that inflation would fall rapidly, the data isn’t bearing it out.

The monthly all items reading was still good news. It was largely driven by energy prices, which fell 2.3% in November (following a 2.5% drop in October) as gasoline and fuel oil prices continued to slide. Food inflation also eased last month.

The 0.3% rise in the all items less food and energy index was disappointing but exactly as we forecast. Again, we’re seeing prices for goods and services moving in opposite directions. Goods prices fell 0.3% in November, their sixth monthly decline. Prices were down 0.1% for new cars, 1.3% for clothing, 1.0% for appliances and 0.6% for recreational goods—a sign of more holiday discounts than we’ve seen in recent years in the US. In contrast, used car prices jumped 1.6% after falling for several months. Services prices were up 0.5%, more than October’s 0.3% rise. This was largely due to higher fees for medical care services and rising shelter costs. Airfares fell 0.4% in November after a 0.9% decline in October.

The diverging paths of goods and services prices is a window into the state of the larger US economy. ISM Manufacturing readings have been low for several quarters, while the ISM Services index continues to rise. Meanwhile recovering supply chains and the slowdown in China have eased global price pressures and weighed on goods prices, while services prices are reflecting domestic price pressures and wage growth. This tension will continue to be a focal point of the fight against inflation.

Once again, energy prices held overall CPI growth in check. But the lack of meaningful progress on core inflation is disappointing, though goods prices have fallen for six straight months. The Fed will want to see services inflation ease further, however. We still think the Fed will keep interest rates where they are for now and hold off on rate cuts until next summer.