Inflation rises in November, making another interest-rate hike by Fed more likely

A key measure of U.S. inflation picked up as expected in November on rising costs for housing, medical care and used cars — reinforcing expectations that the Federal Reserve will raise interest rates next week.

The so-called core consumer price index, which excludes volatile food and energy costs, rose 0.2% from the prior month and 2.2% from a year earlier, according to a Labor Department report Wednesday. That matched the median estimates in a Bloomberg survey of economists. The broader CPI was unchanged from the prior month, also in line with projections, as energy prices plunged.

The report indicates underlying inflation is steadying around the Fed’s 2% goal, without flaring up, as prices get support from the recent pickup in wages as well as higher materials costs amid the tariff war with China. Still, investors and economists are divided about the path of interest rates beyond a widely projected hike at the central bank’s meeting on Tuesday and Wednesday.

While the CPI report “cements a rate hike next week,” the Fed “will have a window to pause in the first half of 2019,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc. in West Chester, Pa.

“Risks to the Fed’s inflation outlook are weighted to the downside” amid falling energy costs and sliding price expectations, which indicate that “inflation isn’t going to create any more sense of urgency for future hikes,” he said.

A December rate rise continued to be priced as a near certainty by the market, even after President Trump on Tuesday said the Fed “would be foolish” to proceed with an increase, continuing his public campaign against further hikes in borrowing costs.

November figures for the Fed’s preferred gauge of inflation, a separate measure related to consumption, will be released on Dec. 21. The Fed-preferred index and its core gauge tend to run slightly below the Labor Department’s CPI measures.

The annual core CPI increase was higher than the 2.1% reported for October, though overall CPI inflation slowed to 2.2% from 2.5%. The broader cooling reflected a 2.2% monthly drop in energy prices, including a 4.2% decline in gasoline, both the biggest decreases since March.

Fed officials have increasingly emphasized they’ll depend on incoming economic data to guide policy. Fed Vice Chairman Richard Clarida recently said it’s “important to monitor measures of inflation expectations to confirm that households and businesses expect price stability to be maintained.”

A separate report released Wednesday by the Labor Department showed average hourly earnings adjusted for inflation rose 0.8% from November 2017, the biggest increase in more than a year. Wage gains have gradually picked up amid a tight job market, while muted inflation overall may have brought some respite to consumers.