Wednesday's CPI report is expected to show that progress in inflation has hit a wall

A major economic report due Wednesday is expected to show that progress in lowering inflation has stalled, but not to the point that the Fed will not cut interest rates next week.

The Consumer Price Index, a broad measure of the costs of goods and services across the U.S. economy, is expected to show a 2.7% 12-month inflation rate for November, representing a 2.7% 12-month inflation rate. 0.1 percentage point acceleration from the previous monthAccording to the Dow Jones consensus.

Excluding food and energy, so-called core inflation is expected to reach 3.3%, or unchanged from October. Both metrics are expected to show monthly increases of 0.3%.

With the Federal Reserve targeting annual inflation of 2%, the report will provide further evidence that rising costs of living remain a fact of life for American families.

“Given these measures, there is nothing to suggest that the inflation dragon has been slain,” said Dan North, chief economist at Allianz Trade Americas. “Inflation is still present, and is not showing any convincing moves towards 2%.”

Along with Wednesday's consumer price reading, the Bureau of Labor Statistics will release its report on Thursday Producer price indexA measure of wholesale prices is expected to show a monthly increase of 0.2%.

To be sure, inflation has come down significantly from its peak in the CPI cycle of around 9% in June 2022. Cumulative effect of price increases This has been a burden on consumers, especially those at the lower end of the wage scale. The core CPI has drifted higher since July after showing a steady series of declines.

However, traders in the futures market place huge odds in front of decision makers The bank will again cut its benchmark interest rate on short-term borrowing by a quarter of a percentage point when the Federal Open Market Committee concludes its meeting on December 18. The odds of a cut were close to 88% on Tuesday morning, according to FedWatch from CME Group Measures.

“When the market is as closed as it is today, the Fed doesn't want to cause a big surprise,” North said. “So unless something picks up that we didn't expect, I'm sure the Fed is on a roll here.”

The increase in November's CPI likely came from a few key areas, according to Goldman Sachs.

Car prices are expected to show a 2% monthly increase, while airline ticket prices are expected to rise 1%, the company's economists forecast in a note. In addition, the alarming increase in auto insurance is likely to continue, as it rose 0.5% in November after posting a 14% increase over the past year, according to Goldman estimates.

While the company expects “further contraction in the pipeline over the next year” from easing in the auto and housing rental categories, as well as a decline in labor markets, it is also concerned that the president-elect Tariffs planned by Donald Trump It could keep inflation high in 2025.

Goldman expects core CPI inflation to decline, but only to 2.7% next year, while the Fed's target inflation measure, the personal consumption expenditures price index, will move to 2.4% on the core reading from its recent level of 2.8%. .

With inflation expected to rise above 2% and macroeconomic growth remaining near 3%, this will not be an environment in which the Fed will cut interest rates. The Fed uses higher interest rates to suppress demand, which would theoretically force companies to lower rates.

Markets expect to skip the January meeting and then potentially cut again in March. Hence, the market is pricing in only one reduction or at least two reductions during the rest of 2025.

“2% to me doesn't just mean getting to 2% and jumping all the way around. It means getting to 2% in the ongoing, foreseeable future, and none of that is evident in any of those reports,” North said. “You don't really want to interrupt that environment.”