Key inflation data released in the US today has got asset managers talking, especially ahead of the second Trump Presidency which starts in January. Today’s data revealed US headline CPI inflation at an annual 2.7% (consensus: 2.7%) for November, up from 2.6% in October..
The core rate of inflation, which excludes foods and energy, was 3.3% (consensus: 3.3%), versus 3.3% in October.
Nathaniel Casey, Investment Strategist at wealth manager Evelyn Partners, says:
“Today’s warmer inflation data came in line with market expectations, with a 0.3% monthly print, but the annual headline rate accelerated slightly to 2.7%. Core inflation has stubbornly remained anchored around 3.3% for the last six prints now, with shelter which makes up a large chunk of the index, continuing to remain elevated as core goods are starting to tick up.
“Used car prices added some pressure for the second consecutive month, with prices in this segment rising by 2.0% for the month of November. Prices for new cars and apparel also moved slightly higher, overall, the category of core goods accelerated by 0.3% for the month, its largest monthly acceleration since May 2023 but remains in deflationary territory on an annual basis.
“Energy prices picks up slightly in November with energy commodity prices and gasoline up 0.5% and 0.6% respectively for the month. However, this was slightly offset by energy services which following two strong months produced a weaker print for November. Food inflation accelerated slightly after a softer print for the category in October with the annual inflation rate picking back up to 2.4%.
“US 10-year Treasury yields ticked down slightly following the CPI data (yields move inversely to prices) while US equity future edged slightly higher.
“Although slightly warmer, this inflation print is unlikely to derail the Fed’s rate cutting cycle and we continue to expect the Fed to cut rates by 25 basis points at their final 2024 later this next month. However, we remain vigilant of any further deviations in the inflation trajectory, given the resilience of the US economy and the potentially expansive fiscal policy that could accompany the Trump Presidency in January.”
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin said:
“US inflation came in exactly as expected across yearly and monthly measures, thus cementing the chance of another rate cut by the Federal Reserve next week. While headline inflation picked up a tiny bit, investors are unlikely to be concerned amid a broadly disinflationary trend. The big question is how Trump’s policy including tax cuts and tariffs will impact inflation. The consensus is inflation could be harder to tame, which investors have reacted to by sizeably trimming expectations for rate cuts next year already.”
Lindsay James, investment strategist at Quilter Investors said:
“Headline US inflation has come in at 2.7% today, up from 2.6% last month, while core CPI remained stagnant at 3.3% year on year. However, the month on month core CPI rate came in at 0.3% for the fourth consecutive month. On an annualised basis, this leaves core CPI at 3.6%, notably higher than the current annual rate.
“Inflation has been coming steadily back into focus in the US. This is due in part to the lack of progress that has been made over the last three months, but also because of concerns that higher US government spending plus the introduction of Trump’s tariffs could create a more inflationary backdrop.
“40% of the monthly uptick in inflation came from housing related costs. The Federal Reserve has limited ability to address issues in the housing market, such as the lack of supply and rising development costs. Migrant labour is common on building sites, and the threat of workplace raids under the incoming Trump administration could further increase costs in the industry.
“However, the Fed has a dual mandate of maximum employment and stable prices. Unemployment has been slowly creeping up, now sitting at 4.2% despite the relatively good payroll figures for November. This higher unemployment rate seems likely to dominate the fear of higher inflation at the Fed’s monetary policy meeting next week, and recent comments from several voting members also seem suggestive of a cut.
“This could be the last interest rate cut we see from the Fed for a while, however, as a pause is looking increasingly likely in the new year. The market only expects two or three further cuts over the course of 2025 – although this is a figure that could rapidly change if rising inflation once again takes root.”
Richard Flynn, Managing Director at Charles Schwab UK, said: “Today’s figures show that the rate of inflation rose in November, compared to October. In recent weeks, policymakers have indicated that they are willing to consider a rate cut at the next Federal Open Market Committee meeting and market expectations have been leaning in that direction too, however, the report published today may temper both of these sentiments. Several Fed speakers have recently indicated that they are unsatisfied by the rate of improvement in inflation and the regression in November fails to provide reassurance on that front. This may lead policymakers to err on the side of caution, opting for a pause in cutting interest rates to avoid bolstering pressure on prices. The argument for restraint is also strengthened by the ongoing uncertainty around the fiscal direction of the incoming US administration and the potential for inflationary effects.”
