While Headline Inflation Continues to Cool, Core Measures Are Hitting a Snag

Key Takeaways:

• A 5.4 percent drop in energy prices, as well as flatter costs for food, helped moderate headline inflation to 3.1 percent year-over-year in November.
• However, after omitting the more volatile food and energy indices, Core Inflation remained at 4.0 percent year-over-year, the same reading from October.
• Housing costs accounted for 70 percent of the year-over-year Core CPI increase. Still, “Supercore” inflation, which further strips out the shelter index, also inched up to 2.1 percent annually.
• Flat core inflation and a rising “Supercore” metric imply the Federal Reserve will hold the overnight rate at the 5.25 percent lower bound at its December meeting tomorrow.
• Markets are pricing at near-certainty for the Fed to hold this month. Officials are likely to keep rates elevated to capture the full, lagged effect of higher borrowing costs on housing inflation.