The November consumer price index (CPI) is up 0.3 percent month-over-month and up 2.7 percent year-over-year. The core CPI excluding food and energy is also up 0.3 percent month-over-month and is up 3.3 percent compared to November 2023. These match the consensus in the Econoday survey of forecasters. The increase reflects an uptick in commodities costs of 0.4 percent in November, although these are down 0.2 percent year-over-year. Commodities prices have been a mainstay of progress in disinflation. Prices for services is up 0.3 percent in November from the prior month and up 4.5 percent year-over-year. Costs for services remain elevated but is a bit lower in November.

Food prices are up 0.2 percent in November from October, mainly in prices for food at home which are up 0.5 percent. Much of the increase is due to shortages related to an outbreak of avian flu which has resulted in higher prices for eggs and poultry items. Overall energy prices are up 0.2 percent in November from the prior month. Prices for energy commodities are up 0.5 percent with the recent slide in gasoline prices leveling out and the onset of colder weather pushing fuel oil prices up 0.6 percent. Food prices are up 2.4 percent from November 2023 and energy prices are down 3.2 percent.

When the FOMC meets on December 17-18, it will have to decide if the flattening in progress on bringing inflation down is sufficient to remove another increment of restriction to monetary policy. While the November CPI data is much as expected, a solid labor market and ongoing modest expansion opens the possibility that cautious rate-setters will decide to wait until the January 28-29, 2025 meeting.

Shelter costs are up 0.3 percent in November from October, with little indication that the underlying trend for monthly increases is changing. However, the year-over-year increase of 4.7 percent is slower than up 4.9 percent in October and September.

Shelter costs are slowly seeing improvement on an annual basis but at over 1/3 of the total CPI basket, continue to keep underlying inflation readings above the Fed's 2 percent objective. This complicates Fed policymakers' assessment of progress in sustainably taming inflation. The CPI special aggregate for services less rent of shelter is up a modest 0.1 percent in November from October and up 4.1 percent from November 2023.

How we wish the inflation numbers were improving! Forecasters expect headline CPI to show increases of 0.3 percent on the month and 2.7 percent on the year for November versus 0.2 percent and 2.6 percent in October. The core is expected at a sticky 0.3 percent and 3.3 percent on the year, the same as in October and September. With readings like this, the expectation for the December Fed policy meeting remains split between a 25 bp cut and no action, although the latest soft-ish jobs report underpins rising expectations for 25.

The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.

The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.

The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.

The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.

The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.

If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.