US CPI Preview: Forecasts from 10 major banks, inflation calms down, another signal of progress

We expect Core CPI inflation to rise by 0.2% MoM in November. Headline CPI is likely to fall 0.1% amid lower energy prices. We think the Fed’s current restrictive monetary settings should crimp demand and ensure the recent moderation in inflation continues. As such we think the Fed is done raising rates. Any possible rate cut remains a way off as Fed officials will want to see much more evidence that inflation is indeed returning to 2% sustainably.

Seasonally adjusted consumer prices in the US are expected to have risen by only 0.1% in November. The YoY rate would then fall from 3.2% to 3.1%. However, the small MoM increase is mainly due to lower energy prices, which is unlikely to be a lasting factor. In particular, gasoline prices, which are very volatile from month to month, fell by 6% on the month. On the other hand, we expect the Core CPI, i.e. excluding energy and food, to be much stronger at 0.3% MoM and unchanged at 4.0% YoY. Overall, the consumer price report is unlikely to change the picture of declining inflation. However, the persistence of core inflation would remind us once again that this decline is only gradual.

We see the headline number at +0.1% (unchanged in October) and Core CPI accelerating to +0.3% (+0.2%). 

The energy component is likely to have had a negative impact on the headline index given the decline in gasoline prices during the month. This should help keep headline prices unchanged on a monthly basis. right, the YoY rate could fall from 3.2% to a 5-month low of 3.0%. Core prices, for their part, could show a 0.3% monthly progression, led by another increase in the shelter component. On a 12-month basis, core inflation should remain unchanged at a 2-year low of 4.0%.

We look for Core CPI inflation to rebound to 0.3% MoM from 0.2% in Oct, with the headline also strengthening to 0.1%. The report is likely to show that the core goods segment added to inflation, while the shelter components (OER/rents) are expected to remain mixed. Note that our unrounded Core CPI inflation forecast at 0.29% MoM suggests largely balanced risks for Nov.

We calculate that gasoline prices fell by slightly more than 6% in November from October. This should maintain a flat headline. We project Core CPI of 0.2%, with shelter costs expected to rise by 0.4% MoM, which would be further moderation in that category. Auto prices are expected to be down slightly again in November, falling by 0.3%. An ongoing drop in used vehicle prices is contributing to the low. 

We expect lower gasoline prices to hold the headline rate of inflation flat in November and forecast the Core CPI, which excludes food and energy, to rise 0.3%, signaling slower progress on underlying inflation. A miss to the upside may drive a market reaction spurring higher yields, but we ultimately doubt the CPI data will materially change the outcome of the Fed meeting, where it's essentially universally expected the FOMC will elect to keep rates on hold. If our CPI forecast is realized, the annual rate of headline inflation would slip to its lowest level rate since March 2021, while the core rate would remain unchanged from a month earlier at 4.0%. Some payback after volatile travel-related declines in October will be responsible for some of the rise in Core CPI. But other areas should decelerate further, including primary shelter and goods prices, which look set to decline for the sixth straight month. While inflation pressure continues to subside, there is still ground to cover before declaring victory.

We expect a 0.30% MoM increase in US Core CPI in November, stronger than the 0.23% increase in October and with risks tilted slightly to the upside for an even stronger print. Services prices should generally be stronger in November across both shelter and non-shelter components. Goods prices however should decline slightly in November.

Headline inflation is expected to be 0.1% MoM given weak energy prices and an expected core inflation reading of 0.2% MoM. The moderation of Core CPI largely reflects the gradual softening of shelter inflation and core goods deflation. Together, these components represent about 70% of core inflation and will more than compensate for the Fed’s so-called ‘supercore’ – services excluding shelter – where price pressure may remain firm. Our views on Core inflation are slightly below consensus but after six months of encouraging progress on inflation, one very cool or very hot reading will not mean much for the Fed. We might be back to the good old days when a single CPI release does not move the needle anymore. Markets mostly understand this and will wait for signals from the FOMC meeting and the latest projection later in the week. 

With the labour market softening, confidence very weak and further declines in the price of oil, a matching outcome is likely in November – a 0.0% for headline and 0.2% for Core prices. If achieved, annual headline inflation is likely to hold around 3% and core 4%. Into 2024, core inflation is expected to remain soft albeit principally because shelter inflation will abate while other components experience modest growth. If the oil price holds around current levels in early-2024, annual headline inflation will quickly decelerate towards 2% and core inflation follow into mid-year.