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Inflation cools further in November as energy prices fall, housing costs remain sticky

Inflation cooled in November on an annual basis, bolstering investor hopes that the Federal Reserve is done hiking interest rates to combat rising prices and could start cutting rates next year.

According to the latest data from the Bureau of Labor Statistics, prices rose 3.1% over the prior year in November, a slight deceleration from October’s 3.2% annual gain. Prices ticked up slightly at 0.1% over last month.

Economists had expected the Consumer Price Index (CPI) to come in flat month-over-month and rise 3.2% year-over-year, according to data from Bloomberg.

As expected, lower energy costs held the headline figures to a smaller gain, with energy prices dropping 2.3% month-over-month and 5.4% on an annual basis. This was dragged down by falling gas prices, which declined 6.0% during the month of November.

On a “core” basis, which strips out the more volatile costs of food and gas, prices in November climbed 4.0% over last year — matching the annual increase seen in October, according to Bloomberg data. Monthly core prices climbed 0.3%, slightly higher than October’s 0.2% monthly rise.

Economists had expected core prices to come in at those levels.

Markets rose in premarket trading on the heels of the report with all three major indices in the green.

Other notable call-outs from the inflation print include the shelter index, which rose 6.5% on an unadjusted, annual basis to account for nearly 70% of the total increase in core inflation.

On a monthly basis, the index increased 0.4%, a slight uptick from October’s 0.3% monthly jump.

Within core inflation, rent prices remained elevated. The index for rent and owners’ equivalent rent each rose 0.5% on a monthly basis. Owners’ equivalent rent is the hypothetical rent a homeowner would pay for the same home.

Other indexes that rose in November included medical care and motor vehicle insurance, which increased 1.0% after rising 1.9% the prior month.

The monthly prices for used cars, which have ticked down in recent months, rose 1.8% after dropping 0.8% in October and 2.5% in September.

The food index increased 2.9% in November over the last year, with food prices rising 0.2% from October to November. The index for food at home increased 0.1% over the month after rising 0.3% in October.

Egg prices increased a sizable 2.2% month-over-month after rising just 0.1% in October. Prices had risen 0.9% in September after falling 2.5% in August and 2.2% in July.

The indexes for apparel, household furnishings and operations, communication, and recreation were among those that decreased over the month, according to the BLS.

To hike or not to hike?

FILE - Federal Reserve Chairman Jerome Powell is introduced at the Jacques Polak Research Conference at the International Monetary Fund, Thursday, Nov. 9, 2023, in Washington. The Fed is set to leave interest rates unchanged while facing speculation about eventual rate cuts. November's inflation report is one of the most important data points the Federal Reserve will consider in its next interest rate decision. (AP Photo/Mark Schiefelbein, File)

Federal Reserve Chairman Jerome Powell is introduced at the Jacques Polak Research Conference at the International Monetary Fund, Thursday, Nov. 9, 2023, in Washington, D.C. November’s inflation report is one of the most important data points the Federal Reserve will consider in its next interest rate decision. (Mark Schiefelbein/AP Photo, File) (ASSOCIATED PRESS)

Although inflation has remained significantly above the Federal Reserve’s 2% target, investors are largely betting the Federal Reserve won’t raise rates in December — especially after recent dovish rhetoric from Federal Reserve officials.

Fed governor Christopher Waller said late last month he’s “increasingly confident” interest rates are at the right level to fend off inflation.

Following the release of the inflation data, markets were pricing in a nearly 100% chance the Federal Reserve keeps rates unchanged in December, according to data from the CME Group.

The market expects the central bank to begin cutting rates at its March meeting, pricing in a roughly 40% chance of a rate cut.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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