Inflation in US rose to 2.7% in November from 2.6% in October, while the “core” figure, excluding energy and food, was 3.3%; in both cases, expectations were met. Investors, a week before the Fed meeting, are discounting another rate cut with a probability close to 100%. Two more cuts are currently being discounted in 2025. However, in a much more uncertain scenario than expected regarding the ECB’s moves.
For the first time since February, all the main inflation categories are showing an increase; the “core” part of goods recorded the largest increase in 2024. Investors, beneath the surface, have read in yesterday’s data a persistent inflation and the end of its slowdown. Yields on US government bonds have risen, the dollar, gold and Bitcoin have risen in a movement consistent with expectations of higher inflation.
Only in January will investors know whether President-elect Trump is threatening tariffs as a negotiating move or whether he will be serious. A protectionist trade policy is inflationary and this will be factored into the US central bank’s assessments and its rate decisions. The President-elect is betting that the benefits, in terms of industry and jobs. Will outweigh the costs, but this does not shift investors’ assessments of inflation expectations. What emerges is that although some economic sectors are slowing, inflation has stopped falling.
There is a second point that is now evident. There is growing attention for “alternative” indices in which, from the San Francisco Fed to the Atlanta Fed. The non-cyclical component of inflation is measured, for example. In investors’ analyses, “core” and then “supercore” inflation is included, the most difficult components to measure are excluded, included or recalibrated, such as, above all, those on the cost of housing.
Alongside the official numbers, there are indices that are completely independent from those of the Department of Labor that measure the movement of prices independently. The synthetic number loses relevance and is implicitly accused of not being able to express the increase in prices. As it is perceived or suffered by the majority of the population.
There is official inflation and then there are other more or less official inflations. For the majority of families, the number of items that are truly important is only a part of the general index. No one, for example, dreams of changing their car if they have a problem with spending on food or other necessary goods.https://youtu.be/cjY1Dw3G9NI?si=dsNWfEVPUuQWXbCa
The Economy is not slowing down as expected twelve months ago, inflation. Although persistent, still allows us to embrace a medium-term scenario of normalization and. In the meantime, central bank cuts and bond yield drops have already arrived. In this scenario, the markets have been able to continue to rise and update new highs, inflation. However, remains under scrutiny for many social, political and financial reasons. Prices are one of the possible surprises of 2025, especially if Trump follows through on his threats on tariffs.