Synopsis:

The November US CPI report showed persistent inflation pressures, with core CPI rising 0.31% m/m, matching consensus expectations. While headline inflation edged up to 2.7% y/y, the report’s internals offered some relief. CIBC expects the Fed to proceed with a 25bp rate cut later this month despite sticky inflation, though future cuts may face delays if growth remains resilient.

Key Points:

1. Inflation Summary:

• Core CPI: +0.31% m/m, unchanged at 3.3% y/y
• Headline CPI: +0.3% m/m, up to 2.7% y/y
• 3-Month Annualized Core CPI: Ticked up to 3.7%

2. Inflation Breakdown:

• Services Inflation: Showed some moderation, driven by lower transportation costs and a slight decline in shelter costs.
• Core Goods Prices: Rose mainly due to a surge in used car prices. Excluding used cars, core goods increased only 0.1% m/m.

3. Fed Policy Implications:

• December Rate Cut Likely: Despite stubborn inflation, the Fed is expected to cut rates by 25bps later this month, given the labor market's cooling trend.
• Easing Cycle Uncertainty: A slower pace of economic growth and further price moderation would be needed to justify additional cuts. Otherwise, the Fed may pause or stretch out its easing cycle into 2025.

Conclusion:

While US inflation remains sticky, underlying dynamics showed some softening. CIBC expects the Fed to cut rates by 25bps at its December meeting, but the path of future cuts may hinge on further signs of economic cooling and easing price pressures.