US inflation falls quicker than expected nailing on slow down from Federal Reserve

US inflation fell again last month to its lowest level since the end of 2021 in another sign this year’s price surge in the world’s biggest economy has passed its peak, official figures out today reveal.

Consumer prices climbed 7.1 per cent over the last year to November across the pond, down from a rate of 7.7 per cent in October, according to the US Labor Department.

Last month’s drop was faster than Wall Street expected. The S&P 500, Nasdaq and Dow Jones indexes shot higher on the news.

Economists and markets have lasered in on monthly changes in prices for clues on whether inflation is cooling in the immediate term. 

On this measure, prices jumped just 0.1 per cent, lower than analysts had priced in. Core inflation came in lower than expected on both the monthly and yearly measures.

Core inflation is seen as a more accurate gauge of underlying price pressures in an economy as it strips out products that often undergo big swings in prices, such as energy.

The bigger than forecasted fall raises the chances of the US Federal Reserve tomorrow slowing its interest rate hike cycle to 50 basis points. 

Such a move would take the world’s most important interest rate, the federal fund rate, to a target range of 4.25 and 4.5 per cent.

The Fed has raised rates 75 basis points four times in a row, the quickest and steepest hiking campaign since the 1980s.

That climb down from forceful rate hikes is anticipated to mark the start of the world’s biggest central banks taking their foot off the accelerator after a year of rapid rate rises.

The Bank of England is likely to lift borrowing costs 50 basis points on Thursday to 3.5 per cent. Christine Lagarde’s European Central Bank is expected to follow suit on the same day.

Fed, Bank and ECB rate setters have been forced to pivot from more than a decade of ultra loose monetary policy to prop up their respective economies after the financial crisis to tame a historic inflation surge.

In 2022, the Fed has cumulatively hiked rates the most out of the trio, but the Bank has signed off its biggest hike in 33 years and the ECB launched its first rise in over a decade.

Fed chair Jerome Powell’s jumbo hikes now seem to be taking effect.

Prices for a raft of goods and services, including used cars and petrol, fell over the last month in the US, pushing overall inflation lower.

October’s inflation numbers also came in much lower than forecast, indicating America may be on track for a period of disinflation.

“Stick a fork in it, inflation is done,” Paul Ashworth, chief north America economist at Capital Economics, said.

“The Fed could dismiss the better-than-expected October report as just one month’s data, but the further slowdown in November makes this new disinflationary trend much harder to ignore,” he added.

Ashworth highlighted rates could eventually end up lower than markets expect if inflation keeps surprising to the downside.

The Fed will publish new forecasts on where rate setters expect rates to peak tomorrow. 

Powell warned over the summer the Fed may lift borrowing to a higher plane than previously expected, but the pace of rate rises would slow.

Inflation across the Western world surged in 2021 and this year, initially due to roaring demand after pandemic lockdowns were lifted gumming up supply chains. Prices were then turbo charged by Russia’s invasion of Ukraine roiling international energy markets.

US inflation peaked in June when it hit 9.1 per cent. Prices rises in the UK have topped the US rate, rising 11.1 per cent over the last year, a 41-year high.