Consumer Price Inflation—November 2024
What happened to inflation in November
°Õ´Ç»å²¹²â’s data ticked up month-to-month bringing the annual inflation rate up to 2.7% in November, providing evidence that the last-mile progress to the Fed’s 2% target could be a challenge. Lower energy prices (-3.2%) are offsetting still-rising prices for services like shelter (+4.7%), which includes rents. Although shelter inflation has moderated notably, it continues to outpace its immediate pre-pandemic range which averaged 3.3% (from 2017-2019).Â
While energy prices declined from a year ago, they ticked higher in the month, suggesting that they may not be as much of a help moving forward. Food prices, which had been growing more moderately, also picked up in the month. Still, core inflation, which excludes noisier food and energy prices and is a helpful indicator of underlying inflation pressure rose 3.3% over the year.
What does this mean for the Fed decision in December?
Hiring rebounded in the November employment report, but the unemployment rate edged up to 4.2%. The full employment portion of the Fed’s dual mandate continues to be met, but the Fed is likely to regard risks to both sides of the mandate as relatively balanced. Given the current position of monetary policy, I expect another quarter point rate cut decision in next week’s meeting, but today’s elevated inflation data put more emphasis on the path forward, and suggest fewer rate cuts are likely ahead.Â
The more interesting news out of will be how much the Fed’s inflation and policy rate expectations for 2025 have shifted as a result of recent readings. In the Fed’s most recent September projections, members anticipated a policy rate of 3.4% by the end of 2024, but the typical investor has currently priced in just 3.9%–two fewer cuts by the end of 2025. The upside of this positioning is that there may be room for market interest rates to move lower if the Fed’s projection winds up closer to reality.Â
What does this mean for homebuyers and sellers
In fact, in the Realtor.com 2025 Housing Forecast, we anticipate market mortgage rates will decrease to 6.2% by the end of 2025. This will help sales eke out a small gain in 2025 of 1.5% even as price increases of 3.7% keep monthly payments relatively steady for homebuyers. Steady monthly payments and income gains from a still robust economy and healthy labor market will help affordability improve marginally in the year ahead.