TheConsumer Price Index (CPI)measures the change in prices paid by consumers for a market basket of goods and services. CPI is a key measure that shows changes in consumer purchasing trends and inflation. The central bank (Federal Reserve) tends to closely follow CPI (and PPI) to monitor the price stability objective of the Fed’s dual mandate. The CPI report showed that inflation while matching economists' expectations posted an uptick in prices in November. Reminding policymakers that inflation continues to weigh on consumer pockets. Headline inflation rose 0.3% in November, bringing the annualized inflation rate to 2.7%. Both the monthly rise and annualized rate showed an uptick of 0.1% from October. The core rate, which excludes the more volatile categories of food and energy and is considered a better predictor of future prices, rose 0.3% for the month and 3.3% from a year ago. Both core measures came in line with expectations and matched the three preceding months. Underlying inflation (core measures) remains rather sticky. Shelter, which accounts for one-third of the weighting for the overall index, rose 0.3% for the month, which accounted for nearly 40% of the monthly move. The shelter category is a lagging indicator as the calculation tends to reflect the prices renters are currently paying and not the prices landlords are asking for now. Fed officials and economists are increasingly confident that housing-related costs will ease in the coming months as rental leases are negotiated. A measure within the shelter component, the ‘owners’ equivalent rent’, that estimates what homeowners could receive in rent for their properties increased by 0.2%, as did the actual rent index. Both respective measures recorded the smallest 1-month increase since April 2021 and July 2021. Other categories, such as food and energy, also contributed to pricing moves. The food index increased 0.4% over the month with the ‘food at home’ index increasing 0.5% and the ‘food away from home’ index increasing 0.3%. The energy index has been volatile as of late, rising 0.2% in November after remaining unchanged in October and declining by -1.9% in September. On an annual basis, the shelter index is up 4.7%, the food index has risen 2.4%, and the energy index is down -3.2%. Furthermore, the Bureau of Labor Statistics released theProducer Price Index (PPI)later in the week which measures the changes in prices at the wholesale level. The report showed wholesale prices accelerated more than expected in November. Headline PPI rose 0.4% in November, while the core index (which excludes food and energy) rose 0.2%. The headline figure came in higher than the 0.2% expected, although the core measure aligned with expectations. On an annualized basis, PPI rose by 3% (previously 2.6%), the biggest advance since February 2023. The annualized core rate held steady at 3.4%. These releases of inflation data come as the Federal Reserve has begun reducing the benchmark interest rate, otherwise known as the federal funds rate. The central bank lowered the fed funds rate by 50bps (0.50%) at the September meeting and by another 25bps (0.25%) at the November meeting. Despite the endurance of stubborn inflation, markets are overwhelmingly pricing in another cut of the benchmark rate at the December meeting, this week. Following the new inflation data, the futures market has increased its expectation of a quarter of a percentage point (0.25%) cut to a near certainty, projecting a 97.1% as of Monday morning (12/16/2024).2 | 
