November's Inflation Report: What to Expect

The last inflation report of 2022 will land before Tuesday's opening bell and it's fair to assume the market will be holding its breath.

With the Federal Reserve set to issue its final rate-hike decision of the year on Wednesday afternoon, the last thing traders and investors want is any sort of nasty surprise about where inflation is headed.

The Fed's aggressive campaign of monetary tightening appears to be tamping down the highest inflation readings in four decades – but it still has a long way to go, experts say.

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And the market, for its part, can't wait for the central bank to at long last take a dovish turn.

For the record, economists surveyed by FactSet forecast the Consumer Price Index (CPI) to rise 0.35% in November vs. the prior month, and 7.3% year-over-year. Core CPI, which excludes volatile food and energy prices, is projected to increase 0.3% month-over-month and 6.1% year-over-year.

Signs that inflation has peaked have greatly improved sentiment in both the stock and bond markets over the past couple of months. After all, the Fed now appears to be in a position to slow down its pace of rate hikes. An unprecedented string of 75 basis point (or 0.75%) interest rate increases should give way to a more moderate hike of 0.5% when the Fed concludes its meeting on Wednesday.

That's the consensus, anyway.

To get a sense of what the experts are thinking ahead of Tuesday's inflation print, below we've put together a selection of commentary from economists, strategists and other market pros – sometimes edited for clarity and/or brevity.

• "Just ahead of the FOMC meeting, the U.S. November CPI report will provide an ample appetizer on Tuesday. Expectations for the figure are toggling around a nondescript headline rise of 0.3%, which would clip the annual inflation rate to roughly 7.3%; the risk is for a slightly meatier core result of 0.4%, which would only shave the annual pace a tick to 6.2%. Given a mild highside surprise on the PPI, markets would likely readily digest this outcome, and move on to the Fed the next day. However, the past two years have certainly taught us to never take the CPI for granted. With high-side surprises the norm since early 2021, it would be an important development if the U.S. managed a second consecutive low-end result. Suffice it to say, we doubt that will be the case, especially for core." – Douglas Porter, chief economist at BMO Capital Markets

• "We expect the report to underscore the dynamics of inflation that Chair Powell highlighted in his Brookings speech. That is, we expect the data to show continued retracement of goods inflation. However, shelter inflation should remain sticky until sometime next year, and core services inflation ex shelter should remain elevated. We look for energy prices to drive the slowdown in headline CPI as we forecast energy CPI fell by 1.3% month-over-month (m/m), reflecting the decline in gas prices. Food price inflation, however, should remain sticky-high at 0.6% m/m. Commodity prices have fallen significantly from earlier this year but logistics, storage and wage costs limit the pass through to broader food prices, in our view." – Stephen Juneau, U.S. economist at BofA Securities 
• "Tuesday's CPI release along with Wednesday's FOMC meeting will undoubtedly set the tone for financial markets as we head into next year. A surprise CPI report could at the margin impact messaging. In terms of our expectations, we are looking for relatively benign prints. Should our forecasts hit the mark, year-over-year rates would continue to fall, with headline and core dropping six tenths (to 7.2%) and two tenths (to 6.1%) respectively. Medical care services are very likely to weigh on the CPI, as health insurance should post something similar in magnitude to October's 4% plunge. We are also expecting moderate price drops in travel-related industries, such as airfares and lodging away. However, there could be some upside risk here given that November air travel was less than 5% off from where it was in November 2019." – Brett Ryan, senior U.S. economist at Deutsche Bank 
• "Tomorrow morning, CPI for November will roll out and set the stage for the Fed's last rate increase for 2022 on Wednesday. Currently, 50 basis points [0.5%] is baked in, but after the strong jobs data, 75 basis points is not completely off the table. With PPI coming in above expectations last week, a surprisingly low CPI is less likely. If 75 basis points comes, it is likely that stocks will gap down, but then rally on the conclusion that all future increases would be no more than 25 basis points, or perhaps the Fed will let it ride for several months to observe the longer term impact of past increases, not wanting to actively continue increases if the economy contracts." – Louis Navellier, chairman and founder of Navellier & Associates 
• "We expect goods prices to fall over coming months – extending the decline in annualized goods inflation – as consumers continue to switch spending back towards services and retailers sell off stockpiled goods at discounted prices. But we think services inflation will stay elevated. Taken together, that means overall inflation is set to remain well above the Federal Reserve's 2% target for quite some time yet." – Jean Boivin, head, BlackRock Investment Institute