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US inflation unexpectedly fell to 2.7 per cent in November, according to figures that will boost the case for the Federal Reserve to press ahead with interest rate cuts next year.
Thursday’s annual consumer price index number from the Bureau of Labor Statistics was below expectations of a 3.1 per cent increase among economists polled by Bloomberg and September’s rise of 3 per cent.
Core inflation, which strips out volatile food and energy prices, rose 2.6 per cent.
The report provides a glimpse into the state of the US economy after a record-length government shutdown caused many official data releases to be postponed. The BLS scrapped its October CPI report due to the shutdown.
Short-term government debt increased slightly in price following the report, pushing yields lower. The two-year Treasury yield was down 0.03 percentage points to 3.45 per cent.
Inflation had remained stubbornly elevated in recent months, providing a political headache for President Donald Trump as voters grow frustrated with a worsening cost-of-living crunch.
Thursday’s data release comes after the Fed voted last week to cut rates to a three-year low following a divisive meeting in which policymakers debated whether to prioritise risks to inflation or the labour market in determining the path forward on monetary policy.
Some members of the rate-setting Federal Open Market Committee have warned that cutting rates too quickly risks exacerbating inflation, while others argue reductions are necessary to support a flagging labour market.
Separate data released by the BLS this week showed the US unemployment rate ticked up to a four-year high in November.
Three FOMC members dissented from last week’s decision, which reduced borrowing costs by 25 basis points for the third time this year, leaving them within a range of 3.5 to 3.75 per cent.
Kansas City Fed chief Jeff Schmid and Chicago Fed head Austan Goolsbee warned against complacency over inflation levels as they called for rates to be held steady.
Fed governor Stephen Miran, a Trump ally, wanted a more substantial cut of 50bp. He said this week that “phantom inflation” was distorting the US central bank’s decision-making and argued the underlying rate was much lower.
The president has piled pressure on the Fed to lower borrowing costs more quickly and repeatedly lashed out at chair Jay Powell, calling him a “numbskull” and “moron”.
Trump is expected to name a replacement for Powell, whose term ends in May, in the coming weeks.
This is a developing story