Further declines in gasoline prices will push headline inflation lower in November, while core inflation, excluding food and energy prices, remains the case, economists say.
This is a repeat of the previous month, when energy prices fell 2.5%, led by a 5% drop in gasoline prices.
The government will release the CPI data at 8:30 a.m. Eastern on Tuesday.
According to a Wall Street Journal survey, economists expect headline inflation to be unchanged in November, continuing the stagnation that started in the previous month.
That should bring headline inflation down to 3.1%, down from 3.2% in the previous month.
The flat value is very “Fed-friendly,” said Scott Anderson, chief U.S. economist at BMO Capital Markets. Fed officials will get the data at the start of their two-day policy meeting, where they are expected to push back at least a little on market expectations of rapid rate cuts next year.
Read: Fed will try to ‘keep calm and carry on’
In contrast, economists predict that core inflation will remain at a high annual rate of 4% in November. Core inflation is likely to have risen 0.3% this month, after rising 0.2% in October.
There is still good news on core inflation. If economists’ forecasts are correct, core inflation would be 2.8% annualized over the past six months. Economists at Deutsch Bank noted that this would be the first time core inflation has fallen below 3% since March 2021.
Economists will keep an eye on core services other than housing, looking for clues about when headline core inflation will turn lower, Anderson said.
In October, core services excluding housing increased by 0.2%. The change over twelve months was 3.8%.
Economists are still debating whether inflation will prove more persistent during the ‘last mile’. Many analysts had thought that core inflation would fall to the 3-4% range, but that returning core inflation to the 2% target would be more difficult.
After six months of relatively good news on inflation, some economists believe last-mile concerns are overblown.
“There is no reason to believe that the last inflation mile will be the toughest,” Gregory Daco, EY’s chief economist, said in a note to clients.
Tim Duy, chief US economist at SGH Macro Advisors, said the tough last mile is “a mid-2023 idea that already seems stale.
But Avery Shenfeld, chief economist at CIBC Capital Markets, said he thinks wage inflation is still too high and the U.S. will need a slower pace of growth to bring inflation back to the 2% target.
“Looking under the hood, however, there are also early signs in the US of a sputtering engine focused on rate-sensitive activity, which should be enough for the Fed to avoid further rate hikes,” Shenfeld said. Lending to businesses has fallen for six months in a row.
The yield on ten-year government bonds BX:TMUBMUSD10Y rose to 4.28% on Monday. That is more than the 4.11% interest rate increase last week.