US inflation unexpectedly eased to 2.7 per cent in November, according to official figures that economists cautioned may have been distorted by disruptions caused by the recent federal government shutdown.
Data released on Thursday by the Bureau of Labor Statistics (BLS) showed the annual increase in the consumer price index (CPI) came in well below the 3.1 per cent forecast by economists surveyed by Bloomberg, and lower than September’s 3 per cent reading. Core inflation, which excludes volatile food and energy prices, slowed to 2.6 per cent, compared with expectations of 3 per cent.
The report offers one of the first snapshots of price pressures in the US economy following the record-length government shutdown, which halted data collection across several federal agencies and forced the postponement of multiple statistical releases. The BLS cancelled its October CPI report altogether due to the shutdown.
Skewed Data Fears
Analysts warned that November’s softer inflation figures may not reflect underlying economic conditions. Michael Hanson, senior economist at JPMorgan, said the data “suggest that the BLS may have held fixed a number of prices it was not able to collect in October,” adding that this likely introduced a “material downward bias” that could be reversed in coming months as normal data collection resumes. The BLS acknowledged that for some components it relied on non-survey data sources in calculating the index.
Financial markets reacted positively to the inflation surprise. Short-term US government debt prices edged higher, pushing yields lower, with the two-year Treasury yield briefly falling to a two-month low of 3.43 per cent. Futures tied to the S&P 500 rose 0.9 per cent.
Inflation has remained a persistent political challenge for President Donald Trump, as voters grapple with elevated living costs. Thursday’s data release follows last week’s decision by the Federal Reserve to cut interest rates to a three-year low, after a closely divided meeting that highlighted internal disagreements over whether inflation risks or labour market weakness should guide monetary policy.
The Federal Open Market Committee reduced borrowing costs by 0.25 percentage points for the third time this year, leaving the benchmark rate in a range of 3.5 to 3.75 per cent. Three policymakers dissented from the decision. Kansas City Fed president Jeff Schmid and Chicago Fed president Austan Goolsbee argued for holding rates steady, warning against complacency on inflation. In contrast, Fed governor Stephen Miran, a Trump ally, pushed for a larger 0.5 percentage point cut, claiming “phantom inflation” was overstating true price pressures.
Adding to the policy debate, separate BLS data released earlier this week showed the US unemployment rate rising to a four-year high in November, reinforcing concerns about a weakening labour market.
President Trump has continued to publicly pressure the central bank to accelerate rate cuts, repeatedly criticising Fed chair Jay Powell. Trump is expected to announce a successor to Powell, whose term expires in May, in the coming weeks.
