The Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.3 percent on a seasonally adjusted basis in November versus the prior month, following four consecutive months of 0.2 percent increases.¹ Over the past 12 months, the all-items index has increased by 2.7 percent before seasonal adjustment. This latest data reflects a modest acceleration in inflation, that remains slightly above the Federal Reserve’s two percent inflation target.

Breaking down the headline CPI

Shelter costs, which rose by 0.3 percent in November, accounted for nearly forty percent of the monthly increase in the all-items index. Continuing pressure from housing-related costs has been a perennial driver of inflation since it was ignited in 2021. Shelter costs have risen 4.7 percent on a year-over-year basis (versus a prior reading of 4.9%), despite predictions that housing costs driven higher by the pandemic would eventually unwind similarly to goods and services prices.

Nevertheless, Elyse Ausenbaugh, Head of Investment Strategy at J.P. Morgan Wealth Management, was encouraged by the latest inflation readings. 

“Under the surface, you have core goods prices still deflating year-over-year and core services prices increasing at their slowest pace since early 2022,” Ausenbaugh said. “It’s also encouraging to see shelter price pressures cool, given that they are still accounting for a sizeable chunk of the core reading.”

The food price index increased by 0.4 percent in November. Within this category, the food at home index rose 0.5 percent, outpacing the food away from home index, which increased by 0.3 percent. Over the past year, the food index has increased by 2.4 percent. The main driver of higher food costs were beef and veal products that were up 3.1 percent month-over-month.²

Energy prices, the other volatile component of the index, rose by 0.2 percent in November after being unchanged in October. Within the energy category, gasoline and fuel oil prices saw notable monthly increases of 0.6 percent, while piped gas prices surged by one percent. However, these gains were partly offset by a decline in electricity prices, which fell by 0.4 percent. On a year-over-year basis, the energy index decreased by 3.2 percent.

Core CPI findings

The core CPI reading, which is the part of the index that strips out food and energy prices, rose by 0.3 percent in November, consistent with its monthly performance in the previous three months. Within the core CPI, several indexes posted increases, including used cars and trucks, which rose by two percent in November. This month-over-month increase contrasts with a 3.4 percent year-over-year decline, reflecting some pick-up in this category after earlier deflation. New vehicle prices also posted a monthly increase of 0.6 percent, though they remain down 0.7 percent year-over-year.

Other categories such as household furnishings and operations, medical care and recreation also saw price increases in November. Conversely, the communication index was among the few major categories to decline during the month, providing a modest counterbalance to the overall inflationary pressures.

Over the past 12 months, the all-items index rose by 2.7 percent, slightly higher than the 2.6 percent increase recorded for the 12 months ending in October.

What’s next for the Federal Reserve?

Though the rate of inflation is closer to the Federal Reserve’s two percent target than it was a year ago, its stickiness throughout much of 2024 illustrates the difficulty facing Federal Reserve decisionmakers. On one hand, high interest rates have made it more difficult for home buyers to afford to buy, and current mortgage holders with rates below four percent don’t have much incentive to sell. On the other hand, policymakers are wary of reigniting inflation after the traumatic experience of 2021 and 2022.

Market reactions to the November CPI report were broadly positive. All three major indexes were up before the bell. Since the inflation figures aligned with expectations, investors appeared reassured that continuing price pressures aren’t enough to make the Federal Reserve reconsider its rate cutting course. Ausenbaugh concurs with this train of thought.

“We think the Fed delivers a cut at next week’s December meeting, with market expectations giving them ‘permission’ to do so,” Ausenbaugh said. “2025’s monetary policy decisions seem likely to be more contentious as fiscal and trade policy start a new chapter under the Trump administration. We think the Fed will move gradually, perhaps skipping January before cutting again in March.”

All of this is to say, investors should embrace this ongoing era of growth and higher rates.

“While policy rates still have some room to move lower, investors should embrace that we are in an investment environment characterized by healthy U.S. growth and secularly higher rates,” Ausenbaugh said. “Core bonds still offer potential for compelling carry-like returns, and defensiveness if there’s an unforeseen downturn in growth. For capital appreciation, we’re excited by opportunities we’re seeing in the U.S. stock market; that constructive view relies on earnings growth as valuations come down in the year ahead.”

For more information on how this economic data may impact your investment strategy, consult a J.P. Morgan advisor.