INFLATION WATCH bumps back up in November. But Wall Street shrugs it off

We got another episode of INFLATION WATCH from the Bureau of Labor Statistics today, and the news wasn't that great.

JUST IN: Inflation progress stalled in November. Inflation rose 2.7% (y/y), up from 2.6% in October and 2.4% in September. The monthly gain was 0.3%, which is the hottest since April. Rent, food and energy all increased. “Core inflation” (excluding food and energy) remained at 3.3%

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— Heather Long (@byheatherlong.bsky.social) December 11, 2024 at 7:33 AM

Seems like we took a step back in November, especially when you go into the actual report and see this part of it.

The index for food increased 0.4 percent in November, after rising 0.2 percent in October. The food at home index rose 0.5 percent over the month. Four of the six major grocery store food group indexes increased in November. The index for meats, poultry, fish, and eggs rose 1.7 percent over the month, as the index for beef increased 3.1 percent and the index for eggs rose 8.2 percent. The nonalcoholic beverages index increased 1.5 percent in November, after rising 0.4 percent in October. The index for other food at home rose 0.1 percent over the month and the index for fruits and vegetables increased 0.2 percent.

Oof. Maybe it really was the price of eggs that got enough people to fill in the ballot for Trump, especially when we see that eggs are up more than 37% over the last year.

But then I saw this chart, and wasn't so sure food inflation was firing back up.

Which means that actual "food at home" prices went down by 0.1%, but because prices usually drop by more than that in November, the seasonally-adjusted number is reported as a 0.5% "increase". Of course, most people don't think in terms of seasonal price changes (outside of maybe gasoline), so to them, food prices didn't change much last month.

Speaking of gasoline, we saw the same type of seasonal adjustment inflating lower prices for that product as well.

The energy index increased 0.2 percent in November, after being unchanged in October. The gasoline index increased 0.6 percent over the month. (Before seasonal adjustment, gasoline prices decreased 2.9 percent in November.) The natural gas index rose 1.0 percent over the month, after rising 0.3 percent in October. In contrast, the index for electricity fell 0.4 percent in November.

As for the 80% "core" of the CPI that removes food and energy prices, we saw that rise by 0.3% for the 4th straight month. This has caused the year-over-year core index to stay consistently over 3% this year even as the overall CPI has dropped below that level.

If this was happening in late 2023 or most of 2024, we'd be seeing panic by Wall Streeters that the Fed would use this report to keep interest rates elevated, and it would trigger a selloff on Wall Street. But instead the NASDAQ index closed over 20,000 for the first time ever and the S&P also continued its run upward. And somehow the "experts" on the Street thought this CPI report was a tame one because they expected inflation to be even higher.

"Nasdaq is rallying on the prospect of a rate cut next week and has room to move higher," said Peter Cardillo, chief market economist at Spartan Capital Securities.

Markets are pricing in more than a 96% chance the Fed will cut rates by 25 basis points next week, up from an 86% chance before the data, according to CME's FedWatch Tool. Bets had risen following Friday's employment report, which showed an uptick in unemployment alongside a surge in job growth....

"The equity market seems to be breathing a sigh of relief that this is another steady-as-she-goes report," said Wasif Latif, chief investment officer at Sarmaya Partners in New Jersey. "There's no surprises. It seems the equity market was braced for a higher than expected number."

Maybe because I'm not a coked-up trader who thinks he's going to get in on the Trump grifts for the next few years, but that doesn't make any sense to me. Sure, the Fed likely should cut rates further, because they kept them too high for too long to begin with, but I can't see how increases in 12-month overall inflation and a core increase staying at 3.3% makes things look better than they did yesterday.

With the CPI report, we also got the BLS's report on real wages for November. And much like the hourly and weekly earnings numbers in the November jobs report, it was kind of a "meh", breaking a 6-month streak of increases in inflation-adjusted hourly wages.

Real average hourly earnings for all employees were unchanged from October to November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.4 percent in average hourly earnings combined with an increase of 0.3 percent in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings increased 0.3 percent over the month due to no change in real average hourly earnings combined with a 0.3-percent increase in the average workweek.

Real average hourly earnings increased 1.3 percent, seasonally adjusted, from November 2023 to November 2024. The change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in a 1.0-percent increase in real average weekly earnings over this period.

Real average hourly earnings for production and nonsupervisory employees increased 0.1 percent from October to November, seasonally adjusted. This result stems from a 0.3 percent increase in average hourly earnings combined with an increase of 0.3 percent in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)...

Over the last year, real hourly wages are up 1.3% for all workers and non-supervisory workers, so progress is still being made. But let's check back and see what that stat looks like this time next year.

While I do fear inflation may be on the way up in 2025, I don't think it's going to be because of what we saw in the November 2024 CPI report. I need more evidence that the "increase" from last month is anything other than a seasonal adjustment that won't be repeated in coming months. But with the prospect of tariffs and corporate rent-seeking coming with the next Trump Administration, that's where I think we may price increases that will come as quite a shock to the fools who thought Trump would reverse the effects of the high inflation we saw from 2021 through mid-2023.