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First Cut: November CPI points to tame inflation, but at a pace that is returning to the Fed’s 2% target

A modest increase in energy costs helped lift the November Consumer Price Index 0.3% over the prior month and brought it up 2.1% compared to November 2018. Excluding food and energy, the core CPI was up 0.2% month-over-month and up 2.3% year-over-year. Energy prices were up 0.8% in November from October, mainly due to an increase of 1.1% for gasoline. Prices for food and beverages were little changed at up 0.1%.

Shelter costs – which account for about a third of the index – were up 0.3% in November from October and were up 3.3% compared to a year ago. The CPI excluding shelter only was up 0.3% month-over-month and up 1.4% from the year-ago month. Shelter costs remain one of the main drivers of upward pressure on consumer prices. The CPI excluding food, energy, and shelter was up 0.2% for November from October and up 1.6% compared to the same month last year.

Fresh taxes on vaping products helped bring the component for tobacco and smoking products up 0.8% from the prior month and up 5.5% from November 2018. While this is a small share of the overall CPI, it can sometimes have a big impact.

Also rising strongly was the cost of health insurance which was up 1.5% in November from October and hit a whopping up 20.2% compared to a year ago.

As has been the case for some time, commodities prices have seen only mild gains, if any. The November CPI for commodities only was up 0.2% from the prior month and up 0.6% compared to a year ago. Services only were up 0.3% month-over-month and up 2.9% compared to last year.

While the PCE deflator is the FOMC’s preferred measure of inflation, the CPI is the latest number that the Committee will have in hand when they finish up their December 10-11 meeting. Inflation remains tame overall, but the CPI suggests that it is indeed coming back in line with the Fed’s symmetric inflation target of 2%.

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