Economic & Financial Consulting Firm in Chicago, Illinois

Inflation Ticks up in November but Path to 2% Remains

Peter Bernstein, Chief Economist pbernstein@rcfecon.com, 312-431-1540 x1515

The Current Situation

The CPI increased 0.3% in November but that resulted in an increase in the year-over-year inflation to 2.7%. Core CPI also rose 0.3% and is up 3.3% from a year ago. Despite recent setbacks, the path to 2% inflation remains, though clearly the road has been slower and choppier than we had hoped. Our detailed analysis, presented below, reveals some positive signs going forward. That said, it has been widely recognized that proposed increases in import tariffs could lead to additional price increases. But for now, those tariffs remain hypothetical and may end up being smaller or less widespread than proposed during the 2024 presidential campaign.

Figure with CPI All Items and Core CPI, showing that while CPI has seen some setbacks recently, there is still a downward trend.

At a recent conference, Chicago Fed President Austan Goolsbee emphasized that the Fed is committed to its 2% goal. He noted that even when inflation spiked in 2022, long-run inflationary expectations were not much changed, which he attributed to the public’s confidence in the Federal Reserve’s ability to bring inflation down. Moreover, Goolsbee noted that the substantial decline in inflation over the past two years occurred without triggering a recession and a large increase in unemployment, something most analysts thought was highly unlikely. The slower than hoped for decline in inflation may be the trade-off for avoiding a recession. “People don’t like inflation, but they also don’t like being unemployed.” Here’s hoping 2025 brings less of the former without more of the latter.

RCF’s Inflation Scorecard

RCF’s Inflation Scorecard is based on analysis of 20 different price series comprising 98% of the total consumer price index. Each of these price series represents a portion of the CPI based on household spending patterns. For example, food purchased for at-home consumption is about 8.2% of the typical consumer’s budget; it has a weight of 8.17 out of a total index of 100.

Our scorecard presents two metrics to track month-to-month price increases. The first metric is the share of the index for which inflation in the most recent month is rising (greater than the prior month’s inflation) vs. the share of the index for which inflation is falling (lower than the prior month) or prices fell (deflation). Our second metric is the share of the index for which the most recent month’s inflation exceeded 0.2%, in line with a 2% annual rate.

RCF Inflation Scorecard: November 2024

Figure with falling, stable, and increasing inflation, showing that in November, a 45% share of goods and services had falling inflation, and 46% had inflation above the Fed's target.

Our first metric shows that 45% of the weighted CPI had lower inflation in November than October. Adding in the 9% of the CPI for which prices fell in November, and the weight of declining price pressures far exceeds that 36% of the index that had higher inflation in November than October.

Our second metric is also encouraging. Less than half (46%) of the weighted CPI had a November price increase above 0.2%. That is a meaningful improvement over the 70% of the index with above 0.2% monthly inflation seen as recently as September. Therefore, despite a setback in the headline inflation rate, the monthly data are consistent with a declining inflation environment.

Bear in mind that even once overall inflation falls to 2%, some categories of the CPI will show higher inflation. The key is that the above-target aspects of the CPI are offset by below-target aspects. That is more or less where things are now.

Analysis of Individual Components of the Consumer Price Index

Table with year-on-year and month-on-month inflation for 20 components of the CPI, making up 98% of the total index.

Sources: Bureau of Labor Statistics and RCF Calculations. 1. Inflation direction indicates whether monthly inflation in November was higher or lower than monthly inflation in October. Deflation means prices fell in November vs October.

Highlights:

First some bad news. Food-at-home prices rose 0.5% in November as egg and meat prices jumped. Though grocery prices are up a modest 1.6% over past year, the November increase was the largest monthly rise in nearly two years.
The most important positive in November was the 0.2% increase in rent and owner’s equivalent rent, the smallest monthly rise since the spring of 2021. It appears that the long-awaited decline in shelter inflation is coming to pass.
The decline in used car prices has ended, with prices up 2% in November following a 2.7% increase in October. Even so, used car prices were lower in November than a year ago. The same was true for new vehicles and motor fuel – prices up in November but down from last year.
Motor vehicle insurance prices were up just 0.1% in November following a 0.1% decline in October. They are still up nearly 13% from a year ago but the trend is moving in the right direction.
In time for the holidays – at least for those who imbibe – alcoholic beverage prices rose just 0.1% in November.
While inflation rose in November, workers are more than keeping pace. Average hourly wages were up 4% year-over-year. Employment growth remains solid and early indicators are that holiday shopping will be solid. Merry Christmas and Happy Holidays!