The US consumer price index (CPI) surprised on the downside in November, dropping to 2.7% year-on-year. This was well below the previous (September) release of 3.0% and the market estimate of 3.1%.
Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, also showed a sharp drop in November, falling to 2.6% year-on-year. This was the lowest level since March 2021 and missed the market estimate of 3.1%.
The monthly headline and core readings are scheduled to be released later today at 21:20 GMT. Both readings are expected to show a gain of 0.3%.
Data Disruptions Due to Government Shutdown
Today’s inflation report follows the September report, as the 43-day government shutdown prevented the collection of October inflation data. As a result, the October CPI report was canceled. This means that the November data will not have month-to-month comparisons with headline and core inflation figures (from October) and is not a “clean report”.
Investors are in somewhat of a “dark hole” with regard to inflation due to the data disruption. Adding to the uncertainty of the inflation picture, the October and November Personal Consumption Expenditures (PCE) reports, the Federal Reserve’s preferred inflation indicators, have not been rescheduled.
US Labor Market is Struggling
The lower-than-expected inflation release comes just two days after a soft employment report. The economy added just 64 thousand jobs in November. This beat the market estimate of 40 thousand but October was a disaster, with an estimated 105 thousand jobs lost. The unemployment rate climbed to 4.6% in November, up from 4.4% in September and above the market estimate of 4.4%. The Federal Reserve, which lowered rates by a quarter-point just last week, won’t be able to ignore this sharp deterioration in the labor market and will have to consider a further cut at the January 28 meeting.
US Dollar Lower, Stock Market Higher After Inflation Report
The US Dollar is slightly lower against most of the major currencies following the release of the US inflation report. The GBP/USD currency pair has showed the strongest gains among the majors, climbing 0.37% and trading at 1.3423 early in the North American session.
The US stock market has just opened the Thursday session. Both the S&P 500 Index the Nasdaq 100 Index are sharply higher, as investors have reacted positively to the inflation report.
The S&P 500 Index has climbed 60 points (0.90%) and is trading at 6,781 points.
The Nasdaq 100 Index is up 352 points (1.43%) at 25,000 points.
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