Phew—inflation is dropping, and now we can let out a small sigh of relief. Today, the Labor Department released the latest Consumer Price Index (CPI) figures, showing prices are 7.1% higher than they were this time last year, but that's down from 7.7% in October and lower than the 7.3% economists originally forecast. The index rose 0.1% from the month prior, also a deceleration from the 0.4% jump in October as energy prices eased.
For anyone worried about energy costs heading into winter (including the price of gas), this latest report provided a bright spot: Energy costs dropped 1.6% in November from October.
Excluding more volatile food and energy prices, the core inflation rate edged 0.2% higher in November, down slightly from October's 0.3% gain. It was up 6% from a year ago, but lower than the 6.3% the month before.
The decline in inflation comes just as the Federal Reserve kicks off its two-day policy meeting, with a decision on interest rate hikes due tomorrow. With inflation dropping by more than expected, it renews hope and optimism that the Fed will hand us a more moderate rate hike of 50 basis points.
While it might seem irrelevant whether the Fed hikes rates by 50 or 75 basis points, the higher interest rates go, the more expensive a loan you or I get from the bank could be. And for investors, higher interest rates mean bigger hits to future corporate earnings and profits.
Markets are now seeing a roughly 80% chance of a more moderate rate hike tomorrow. Just yesterday, it was a 77% chance, indicating that investors are growing more optimistic about a less aggressive path forward from the Fed.
Predictably, stocks are surging on the news that inflation is moderating, with the S&P 500 gaining more than 1.5% and the tech-heavy Nasdaq jumping over 2% after the open this morning.
- Kristin
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