Synopsis:

BofA expects core CPI inflation to slow to 0.2% m/m (0.23% unrounded) in November, down from three consecutive 0.3% m/m prints. Headline CPI is forecasted to rise by 0.2% m/m (0.22% unrounded), bringing the y/y rate to 2.6%. Cooling airfares, softening core goods prices, and easing services inflation should keep upside risks contained.

Key Points:

1. Expected CPI Breakdown:

• Core CPI: +0.2% m/m (0.23% unrounded), 3.2% y/y (down 0.1%)
• Headline CPI: +0.2% m/m (0.22% unrounded), 2.6% y/y

2. Key Inflation Drivers:

• Airfares: Expected to decline by 1% after surging for three consecutive months, contributing -1bp to core inflation.
• Core Goods: Minimal change (+0.02%) with rising used car prices offsetting softness elsewhere.
• Core Services: Slight cooling due to lower airfares and moderating shelter inflation.

3. Structural Inflation Outlook:

• Limited Upside Risks: Rebalancing in the labor market, easing supply constraints, and anchored inflation expectations should curb inflationary pressures.
• Policy Risks Ahead: Expected changes to tariffs, fiscal policy, and immigration policy may slow inflation progress in 2025.

4. Fed Policy Implications:

• December Fed Decision: With the soft jobs report already increasing the likelihood of a 25bp Fed rate cut in December, this inflation report could further solidify the case for easing.
• What Could Delay the Cut: A firmer inflation print exceeding 0.3% m/m for Core PCE could lead the Fed to pause.

Conclusion:

BofA expects inflation to moderate in November, keeping the Fed on track for a 25bp rate cut in December. While structural factors remain supportive of easing inflation, potential policy changes next year could slow progress.