US core inflation unexpectedly eases to slowest pace since 2021

Underlying US inflation rose in November at the slowest annual pace since early 2021, an unexpected improvement following months of stubborn price pressures. 

The core consumer price index, which excludes the often-volatile food and energy categories, increased 2.6 per cent in November from a year ago, according to Bureau of Labor Statistics data out Thursday. That compares with a 3 per cent annual advance two months earlier. The overall CPI climbed 2.7 per cent in November from a year ago. 

The report was complicated by the federal government shutdown, which prevented the BLS from collecting much of the October price data. That limited the agency’s ability to determine month-over-month changes for the broader measures of inflation and many key categories in November. 

The BLS said the core CPI rose 0.2 per cent over the two months ended in November, restrained by declines in costs of hotel stays, recreation and apparel. Prices of household furnishings and personal care products rose. 

Despite numerous caveats, the report offers hope that inflationary pressures are easing after remaining stuck in a narrow range since early this year. 

Stock-index futures extended gains, while Treasury yields remained lower and the dollar fell after the report. 

It’s not clear whether the CPI report will sway Federal Reserve policymakers, who remain divided on the course of interest rates next year. Last week, the Fed lowered interest rates for a third straight meeting to guard against a more concerning deterioration in the labor market. 

Fed Chair Jerome Powell said last week the CPI data “may be distorted” because of the record-long government shutdown that ended on Nov. 12. 

The shutdown not only led to the cancelation of the October report but also forced BLS price gathering to begin later in November, shortening the collection period. Some economists have noted that could skew the figures, given discounts around Black Friday. Still, BLS said it authorized additional collection hours to try to gather data for the entire month. 

Goods prices, excluding food and energy commodities, rose 1.4 per cent on an annual basis. That compares with 1.5 per cent increases in August and September.  

Using data collected from third-party sources, the BLS was able to report monthly prices changes for some select categories, including new and used vehicles and gasoline.  

New-car prices rose 0.2 per cent after edging up 0.1 per cent a month earlier. Used-car price growth decelerated. 

Powell said last week that he expects inflation from goods to peak in the first quarter, assuming no new major tariff announcements. 

Services prices excluding energy climbed 3 per cent on an annual basis. Airfares and hotel stays declined from a year ago. Another services gauge closely tracked by the Fed, which strips out housing and energy costs, rose 2.7 per cent from November 2024 — matching the smallest annual advance since 2021. 

One of the key drivers of inflation in recent years has been housing costs — the largest category within services. Shelter prices increased 3 per cent from a year ago, the smallest advance in more than four years. 

CPI largely relies on in-person visits to retail stores and service establishments across the country to gather prices for thousands of items. That accounts for about 60 per cent of the sample, while other prices are collected over the phone, online and through third-party sources. The BLS said the number of indexes that are composed of non-survey data is “very limited.”

--With assistance from Reade Pickert and Julia Fanzeres.