Breaking: US CPI inflation softens to 3.1% as forecast

Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 3.1% on a yearly basis in November, the US Bureau of Labor Statistics (BLS) reported on Tuesday. This reading followed October's reading of 3.2% and came in line with the market expectation.

The annual Core CPI inflation, which excludes volatile food and energy prices, held steady at 4% as forecast. On a monthly basis, the CPI and the Core CPI rose 0.1% and 0.3%, respectively.

Follow our live coverage of the US inflation data and the market reaction.

"The index for shelter continued to rise in November, offsetting a decline in the gasoline index," the BLS said in its press release. "The energy index fell 2.3% over the month as a 6.0% decline in the gasoline index more than offset increases in other energy component indexes."

Market reaction to US inflation data

The US Dollar (USD) struggles to find demand after inflation figures. As of writing, the USD Index, which tracks the USD's performance against a basket of six major currencies, was down 0.4% on the day at 103.65.

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This section below was published at 03:00 GMT as a preview of the US November Consumer Price Index (CPI) data. 

• The US Consumer Price Index is forecast to rise 3.1% YoY in November, down from the 3.2% increase recorded in October.
• Annual Core CPI inflation is expected to hold steady at 4% in November.
• US CPI inflation report could impact the US Dollar’s valuation ahead of the Fed’s policy announcements.

The highly-anticipated US Consumer Price Index (CPI) inflation data for November will be published by the Bureau of Labor Statistics (BLS) at 13:30 GMT. Inflation is expected to soften further, adding to the view that the Federal Reserve (Fed) is done hiking rates ahead of its last meeting of the year.

The US Dollar (USD) has stabilized in December after suffering large losses against its major rivals in November, with the USD Index falling nearly 3% on a monthly basis.

Although Fed officials remain committed to the data-dependent approach to monetary policy, the Fed is widely expected to leave the interest rate unchanged at the 5.25%-5.5% range after conducting the last monetary policy meeting of the year. The steady decline in inflation and growing signs of a cooldown in the labor market, however, caused markets to start anticipating a policy shift. According to the CME Group FedWatch Tool, there is a more than 40% probability of the Fed reducing the policy rate by 25 basis points as early as March. 

US CPI inflation data could influence the market positioning regarding the timing of a policy shift and trigger a big reaction in the USD’s valuation before the Fed announces monetary policy decisions and releases the revised Summary of Economic Projections (SEP) on Wednesday.

What to expect in the next CPI data report?

The US Consumer Price Index, on a yearly basis, is expected to rise 3.1% in November, at a slightly softer pace than the 3.2% increase recorded in October. The Core CPI figure, which excludes volatile food and energy prices, is forecast to hold steady at 4% in the same period.

The monthly CPI and the Core CPI are seen rising 0.1% and 0.3%, respectively. Oil prices continued to decline in November, with the barrel of West Texas Intermediate falling another 7% after declining about 10% in October. Meanwhile, used car prices fell 2.1% in November, bringing the annual rate of fall to 5.8% in that period, according to the Manheim Used Vehicle Index.

Previewing the US November inflation report, “we look for core CPI inflation to rebound to 0.3% m/m from 0.2% in Oct, with the headline also strengthening to 0.1%,” said TD Securities analysts and explained:

“The report is likely to show that the core goods segment added to inflation, while the shelter components (OER/rents) are expected to remain mixed. Note that our unrounded core CPI inflation forecast at 0.29% m/m suggests largely balanced risks for November.”

In the meantime, the Prices Paid Index of the ISM Services PMI survey edged slightly lower to 58.3 in October from 58.6, while the Price Index of the Manufacturing PMI rose to 49.9 from 43.8. These readings showed that input price pressures in the service sector remained strong in November, while the deflation in the manufacturing input costs slowed down. 

When will the Consumer Price Index report be released and how could it affect EUR/USD?

The Consumer Price Index inflation data for November will be published at 13:30 GMT. A monthly core inflation reading of 0.5% or higher could cause investors to refrain from betting on a policy shift in the first half of 2024 and provide a boost to the USD with the immediate reaction. On the other hand, a weak Core CPI increase of 0.2% or less could have the opposite impact on the USD’s valuation. 

Investors could refrain from taking large positions based on the CPI data alone. On Wednesday, the Fed will release the revised Summary of Economic Projections, including the so-called dot plot, which could provide key clues regarding the timing of a policy shift.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD and explains: 

“The near-term outlook for EUR/USD points to a lack of buyer interest. The pair, however, is yet to gather bearish momentum. The Relative Strength Index (RSI) indicator on the daily chart stays flat slightly below 50, while the pair was fluctuating near the 100-day Simple Moving Average (SMA) at the time of press, currently located at around 1.0750.” 

“Nevertheless, EUR/USD needs to climb above 1.0820 (200-day SMA) and confirm that level as support to attract technical buyers. In this scenario, 1.0870 (Fibonacci 23.6% retracement of the latest uptrend) could act as interim resistance ahead of 1.1000 (psychological level, end-point of the latest uptrend). On the downside, the 1.0700–1.0720 area (Fibonacci 50% retracement, 50-day SMA) aligns as first support before 1.0650 (Fibonacci 61.8% retracement) and 1.0600 (psychological level, static level.)”