"Benign" US CPI sets up a -0.25% Federal Reserve rate cut next week.
The American Consumer Price Index increased +0.3% on a seasonally adjusted basis in November, as expected, after rising +0.2% in each of the previous 4 months, the Bureau of Labor Statistics reported.
Over the last 12 months, the all items index increased +2.7%, in line with forecasts and up from +2.6% last month.
The index for shelter rose +0.3% in November, accounting for nearly 40% of the monthly increase.
The food index also increased over the month, rising +0.4% as the food at home index increased +0.5%, and the food away from home index rose +0.3%. The food index increased +2.4% over the last year.
The energy index rose +0.2% over the month, after being unchanged in October, but was -3.2% lower over the last year.
The core CPI index ex-food and energy rose +0.3% in November for the fourth month in a row, as expected.
Core CPI was up +3.3% over the last year, as anticipated, and for the third consecutive month.
The Fed's "supercore" measure of services less housing was up +0.3% in November and +4.3% over the last year.
Australian unemployment is expected to rise from +4.1% to 4.2% when released later this morning. The number is unlikely to move rate expectations unless there is a significant surprise. The RBA will have more data to review before the next meeting in February.
S&P500 6,084 +0.8%, Nasdaq Comp. 20,034 +1.8%, S&P/ASX200 future 8,412 +0.5%,
US 2yr 4.15% +1bps, US 10yr 4.27% +5bps
US dollar (DXY) index 106.66 +0.3%, AUDUSD 0.6369 -0.13%, Gold US$/oz 2,718 +0.9%
Fin-X Wealth View
Following the CPI report, the interest rate market has moved to fully price a -0.25% Federal Reserve cut next week to 4.25% - 4.50%, and the equity market has enjoyed a relief rally.
The market and the Fed are still content that shelter prices are highly likely to come down next year based on more timely data.
However, there are also some signs that goods prices may be adjusting early to the prospect of tariffs and producer prices are expected to firm up tomorrow, which is likely to flow on to slightly firmer PCE inflation which has a much lower weight in shelter.
The market will now focus on the "dot plots" that accompany the rate announcement next week. There is scope for the Fed to be a little more hawkish than the market is pricing. A total of 3.3 cuts by the end of 2025 (including next week's cut) may be more than the Fed anticipates but is very possible if unemployment continues to rise.
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