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The CPI report published for November 2022 confirms the general perception that runaway inflation is finally easing out.
The eagerly-awaited consumer price index (CPI) for November 2022 came in less than expected, inching upward by 0.1% from the preceding month, compared to the expected 0.3%. In addition, the November 2022 CPI increased 7.1% year-over-year (YoY), short of the 7.3% that analysts were expecting.
The Labor Department also reported Tuesday that core CPI (excluding food and energy costs) increased 0.2% on the month and 6% annually. Meanwhile, analysts’ estimates had it at 0.3% on a monthly basis and 6.1% annually.
The increase in CPI from a year ago sits well above the Federal Reserve’s healthy inflation level target of 2%. However, this increase also tied for the lowest since November last year. Furthermore, there was an 0.5% monthly increase in workers’ inflation-adjusted average hourly earnings. Despite this increase, hourly wages for workers remain down 1.9% from a year ago.
Economy Ready to Move on Following Encouraging November 2022 CPI Report
Stocks initially surged following the November CPI report, with investor confidence brimming on apparent signs that runaway inflation is receding. For instance, the Dow Jones Industrial Average (DJIA) futures climbed an initial 800 points before lessening. By the end of the session, the rally had cooled off entirely, with the Dow up only 50 points around 2:30 pm Eastern Time yesterday.
Commenting on the positive optics brought about by the latest CPI report, and how it pertains to inflation, Navy Federal Credit Union corporate economist Robert Frick explained:
“Cooling inflation will boost the markets and take pressure off the Fed for raising rates, but most importantly, this spells real relief starting for Americans whose finances have been punished by higher prices…This is especially true for lower-income Americans who are disproportionately hurt by inflation.”
The reduced intensity of inflationary pressure added a spring to workers’ purchasing power following months of wage increases playing catch up to inflation.
The November 2022 CPI report arrived the same day the Federal Open Market Committee’s pivotal two-day meeting began. Before the Fed announced the latest CPI data, market observers widely expected the FOMC to announce a 0.5 percentage point rate increase Wednesday.
The Fed had previously hinted at increasing rates at reduced intensity due to signs of ebbing inflation and to also avert a recession. North American Capital Economics economist Paul Ashworth agrees with the FOMC that inflation is on the decline. He also pointed out that the signs of waning inflation are more pronounced now than ever. According to Ashworth, “The Fed could dismiss the better-than-expected October as just one month’s data, but the further slowdown in November makes this new disinflationary trend harder to dismiss.”
Inflation spiked in the spring of last year due to a combination of factors that saw prices soar to levels not seen in 40 years. Significant causative factors for this inflationary run include the war in Ukraine and a Covid-induced supply and demand imbalance.