US core CPI falls short of forecasts in November

Consumer prices in the US confounded economists again last month as core inflation fell short of their forecasts, weighed down by a sharp drop in apparel costs.

The headline consumer price index rose by 0.4% month-on-month in November, according to the Bureau of Labor Statistics, taking the year-on-year rate of gains from 2.0% in the month before to 2.2%.

That was in-line with economists' forecasts.

However, at the so-called 'core' level, which excludes the cost of both food and energy, CPI was up by 0.1% versus October and by 1.7% on the year earlier level.

Energy prices were sharply higher, according to Labor, with gasoline prices jumping by 7.3% and that of natural gas by 0.6% alongside it.

Used car and truck prices also shot higher, rising by 1.0% on the month, together with gains of 0.3% for those of new vehicles and of 0.6% for medical care commodities.

Offsetting the above, the cost of apparel declined by 1.3% - subtracting 0.06 points from the core rate of inflation - and that of medical care services by 0.1%.

Commenting on the data, Ian Shepherdson, chief economist at Pantheon Macroeconomics appeared to indicate he was skeptical of the large divergence that had opened up between apparel prices and weakness in the US dollar, resulting in a "dramatic" drop in their correlation with the Greenback "more or less overnight".

"Overall, these data won't change the outcome of the Fed meeting today, and they don't change our view that the rise to core inflation over the next year is to the upside. But the volatility in the data in recent months - since July, the core has alternated between 0.1% and 0.2% - makes it clear that a sustained upward trend is yet to be established, despite accelerating core PPI inflation and the tightening labor market."

Blerina Uruci at Barclays Research was in a similar frame of mind, telling clients: "After returning to positive prints briefly, monthly core goods prices decline again in November and the pace of increase in core services slowed.

"We think that the FOMC will maintain its caution with regards to the inflation trend in recent months and highlight that it is monitoring developments closely. Nevertheless, we think the bar is high for it to deviate from its tightening path right now and maintain our call that a 25bp interest rate increase is likely at today's meeting."