Inflation Inches Up in November, Fed Rate Cut Imminent
In November, inflation saw a slight increase, with the consumer price index (CPI) rising by 2.7% year-over-year. This uptick was largely attributed to higher shelter costs, although the core inflation rate remained stable at 3.3%. Despite inflation still being above the Federal Reserve's 2% target, there is optimism that the disinflationary trend is continuing. In response, the Fed is widely expected to cut its benchmark interest rate by 0.25 percentage points, with markets anticipating this move with a 99% likelihood.
While shelter, used vehicles, and food prices were key contributors to the inflation rise, average hourly earnings, adjusted for inflation, remained flat for the month. The Fed’s cautious stance reflects its concern about the persistence of inflation, despite the favorable disinflationary trend in recent months.
Wholesale Prices Rise More Than Expected
In November, the Producer Price Index (PPI) rose by 0.4%, surpassing expectations, with the annual PPI climbing to 3%, its highest level since February 2023. This increase was primarily driven by a significant 3.1% rise in food costs. Excluding food and energy, the core PPI increased by 0.2%, aligning with forecasts. Despite these inflationary pressures, the broader inflation outlook remains mixed.
Markets are largely confident that the Federal Reserve will implement a 0.25 percentage point reduction in its benchmark interest rate this week, reflecting ongoing concerns about inflation but also acknowledging the economic challenges. Additionally, labor market concerns are growing, as weekly unemployment claims rose to 242,000 and continuing claims reached a four-year high, which could influence the Fed's policy decisions moving forward.
Businesses Prepare for Increased Costs
With President-elect Donald Trump prioritizing tariffs as a key part of his economic agenda, small businesses across the U.S. are bracing for increased costs and seeking ways to mitigate potential financial strain. Many businesses are responding by stockpiling inventory, looking for alternative suppliers, or accelerating large orders and equipment purchases ahead of expected price hikes. The proposed tariffs, ranging from 25% for Mexico and Canada to as much as 60% for China, are a primary concern, as they could significantly raise prices and strain the financial stability of small distributors.
While a small number of businesses view the tariffs as an opportunity to strengthen domestic production and sustainability, the majority of small business owners are worried about the negative impacts. These include reduced growth prospects, higher inflation, and the uncertainty of future trade policies, all of which are expected to add pressure to their operations and affect consumer prices.
