In November, the Federal Reserve’s favored inflation metric experienced a small increase, signaling that price levels continue to stay elevated despite overall signs of a resilient economy. According to data released by the Commerce Department on Thursday, consumer prices climbed by 2.8% compared to the same month a year prior, rising slightly from the 2.7% annual increase observed in October. Key to understanding the underlying inflation trend, core prices—those excluding food and energy due to their price volatility—also grew annually by 2.8% in November, marginally surpassing October's 2.7% rise.
Consumer spending, a critical driver of economic growth, recorded a 0.5% increase from October to November, indicating continued vigor in household expenditures. These figures highlight ongoing strength in the economic landscape as the country approached the end of the year. Despite these positive indicators, labor market dynamics have shifted, with hiring momentum slowing considerably, causing frustration among job seekers, though the unemployment rate has remained relatively low.
These developments suggest a complex economic environment where inflationary pressures persist but have retreated significantly since peaking at a four-decade high in June 2022. James McCann, an economist at Edward Jones, commented on the implications for monetary policy, noting, "Today's data should reassure the Fed that the economy remains on a solid footing, despite a cooler labor market. Indeed, there looks to be little urgency to cut rates at next week's meeting, and the central bank could stay on hold for longer should growth remain robust into 2026 and inflation continue to run at above target rates."
Examining the data on a monthly basis, inflation rates demonstrate moderation. Both overall and core inflation registered a 0.2% increase in November relative to October. If sustained, this pace would align inflation more closely with the Federal Reserve's target rate of 2%. It is important to note that this inflation report was delayed due to a six-week government shutdown that occurred last fall.
The encouraging consumer spending figures complement separate economic data released the same day showing that the U.S. economy expanded at an annualized rate of 4.4% during the July to September quarter. This rate of growth represents the fastest pace observed in two years, indicating that the economy maintained substantial momentum into the final quarter of 2025.
The combination of a steady inflation rate, robust consumer demand, and sustained economic expansion paints a picture of an economy navigating tempered inflation and persistent growth challenges, particularly in the labor market. Monetary policy decisions are likely to reflect this balance as the Federal Reserve evaluates the trajectory of inflation and economic activity moving forward.