Inflation increases cloud hope for decline

The latest inflation figures from the U.S. Department of Labor show that consumer prices in November increased by 2.7% year-on-year and by 0.3% compared to the previous month. These figures are slightly higher than in October, raising concerns that the easing of inflation may stall above the Federal Reserve's target of 2%. Notably, car insurance prices rose by 12.7% year-on-year, while housing and airline prices increased by 4.7% and restaurant costs by 3.6%, respectively. In contrast, prices for household appliances slightly decreased by 0.2%, and gasoline prices were 8.1% lower than the previous year. Attention is also on core inflation, which is calculated without volatile food and fuel prices and rose by 0.3% for the fourth consecutive month. On an annual basis, the core rate increased by 3.3%. According to experts, the current data suggests that the path to combating inflation remains bumpy, a trend most economists had anticipated. However, the November figures also indicate that inflation could linger above the Fed's target longer than hoped. Economist Tuan Nguyen from RSM explains that some of the data is likely seasonal, but there are unmistakable signs of a trend reversal, primarily driven by strong growth, robust consumer spending, and wage increases. Despite these developments, investors are betting that the Fed will implement a rate cut at its last meeting this year next week, even as the outlook for 2025 becomes more complicated. Loretta Mester, former President of the Cleveland Fed, stated to Bloomberg that a cut of 25 basis points in December could be considered certain, but the future is more uncertain. These developments come at a time when President-elect Donald Trump plans to begin his term, with initiatives that could complicate the Fed's efforts to lower interest rates amid declining inflation. Economists fear that Trump's plans to increase tariffs, deport millions of undocumented migrants, and drastically cut taxes could drive up prices and thus reinforce inflation in the U.S. Sarah House, a senior economist at Wells Fargo, stated that it might become difficult to bring inflation back to target as long as demand remains strong. She explained that it is now necessary to weaken the demand side of the economy to achieve further progress in curbing inflation.