Today's Consumer Price Index (CPI) report brought some welcome relief: U.S. annual consumer prices increased by **2.7%** in November, coming in well below economists' expectations of **3.1%**. This marks a slowdown from September's **3.0%** year-over-year reading. Core CPI, which excludes volatile food and energy prices, also cooled to **2.6%** annually.
At first glance, this looks like progress in the ongoing battle against inflation. But dig a little deeper, and the picture gets more complicated—thanks to an unusual technical glitch and broader economic forces at play.
Why the Lower-Than-Expected Reading?
The softer November numbers aren't entirely due to fundamental cooling in the economy. A key factor was the **43-day government shutdown**—the longest in U.S. history—which disrupted data collection for October. As a result, the Bureau of Labor Statistics couldn't release October CPI data, and there are no month-to-month comparisons available this time around.
More importantly, the delayed November data collection pushed surveys later into the month, capturing more of the **holiday season discounts** that retailers typically roll out. Economists warn that this timing effect likely flattered the headline number, and many expect CPI to accelerate again in December when the data normalizes.
In short: don't pop the champagne just yet. This moderation appears at least partly **technical**.
The Bigger Picture: Tariffs and Affordability Challenges
While the headline grabbed attention, the underlying story remains one of persistent price pressures—largely driven by **import tariffs**. Federal Reserve Chair Jerome Powell recently pointed the finger directly: "It's really tariffs that are causing most of the inflation overshoot."
Economists note that businesses have gradually passed on tariff costs to consumers. One estimate from Pantheon Macroeconomics suggests retailers had passed through about **40%** of tariff impacts by September, with that figure expected to rise to **70%** by March 2026 before stabilizing. Lower-income households are feeling the pinch most acutely, as they have limited savings buffers and slower wage growth to offset higher prices.
On a positive note, recent White House actions to roll back duties on some goods—like beef, bananas, and coffee—could eventually translate to lower prices at the checkout. But these benefits may take time to materialize.
What This Means for Interest Rates and the Fed
Just last week, the Federal Reserve cut its benchmark rate by **25 basis points** to the **3.50%–3.75%** range. However, officials signaled that further cuts are unlikely in the near term until they get clearer signals on both inflation and the labor market.
With tariff-driven pressures still in the pipeline and the shutdown clouding recent data, the Fed appears content to stay on hold. Borrowers hoping for rapid rate relief may need to temper expectations.
Today's CPI report offers a brief moment of optimism amid a challenging inflation landscape. The lower-than-expected print is encouraging, but much of it stems from timing quirks rather than a decisive turning point.
As we head into 2026, the key variables to watch will be:
- how quickly tariff costs continue to flow through,
- whether holiday discounts persist, and
- how consumers—especially those on tighter budgets—cope with ongoing affordability strains.
Inflation isn't defeated yet, but reports like this remind us that progress, even if uneven, is still possible.
In a sign of stability for the job market, fewer Americans filed new applications for unemployment benefits last week compared to the week prior, federal data out Thursday shows. Generally, the job market hasn’t budged much in recent weeks, as employers avoid both hiring and mass layoffs. According to economists, shocked businesses responded to sweeping U.S. tariffs by scaling back on headcount increases. And a survey released Wednesday shows CFOs still cite tariffs as a top concern.