Economic Preview: Falling gasoline prices will help ease consumer inflation again in November

According to a Wall Street Journal survey, economists expect headline inflation was unchanged in November, extending a stall that started in the prior month.

That should bring headline inflation down to 3% from 3.2% in the prior month.

The flat reading is very “Fed-friendly,” said Scott Anderson, chief U.S. economist at BMO Capital Markets. Fed officials will get the data at the start of their two-day policy meeting where they are expected to push back, at least a bit, on market expectations of quick rate cuts next year.

Read: Fed will try to ‘keep calm and carry on’

In contrast, core inflation will remain at an elevated 4% year-on-year basis in November, economists forecast. Core inflation likely rose 0.3% in the month, after a 0.2% gain in October.

There is still good news on core inflation. If economists forecasts are correct, core inflation over the past six months would be running at a 2.8% annual rate. Economists from Deutsch Bank noted this would be the first time core inflation has been below 3% since March of 2021.

Economists will be watching core services excluding housing, for clues on when overall core inflation will turn lower, Anderson said.

In October, core services ex-housing was up 0.2%. The 12-month change was 3.8%.

Economists are still debating whether inflation will prove to be more stubborn over the “last mile.” Many analysts had thought that core inflation would come down to the 3-4% range, but that getting it back to the 2% target would be more difficult.

After six months of relatively good news on inflation, some economists think the worry of the last mile is overblown.

“Ain’t no reason to believe the last inflation mile will be the most difficult,” Gregory Daco, EY chief economist, said in a note to clients.

Tim Duy, chief U.S. economist at SGH Macro Advisors, said the hard last mile is “a mid-2023 idea that already appears stale.

But Avery Shenfeld, chief economist at CIBC Capital Markets, said he thinks that wage inflation is still too brisk and that the U.S. will need to see a slower pace of growth to get inflation back to the 2% target.

“If you look under the hood, there are however early signs of a sputtering engine in the US as well, centered on interest-sensitive activity, which should be sufficient to have the Fed eschewing further rate hikes,” Shenfeld said, noting that bank lending to businesses has been down for six straight months.

The 10-year Treasury yield
BX:TMUBMUSD10Y
has risen to 4.28% on Monday. That’s up from a 4.11% rate hit last week.