WRAPUP 3-US annual consumer inflation moderates in November amid missing data

By Lucia Mutikani

WASHINGTON, Dec 18 (Reuters) - U.S. consumer prices increased less than expected in the year to November, but the moderation was likely technical after the 43-day government shutdown delayed data collection late into the month, when retailers offered holiday season discounts.

The shutdown also prevented the Labor Department's Bureau of Labor Statistics from publishing month-to-month changes for November's Consumer Price Index report on Thursday, as most of the price data for October was not collected. The October CPI release was canceled because the data could not be collected retroactively. It was the first time that the BLS did not publish monthly CPI rates.

The shutdown also prevented the statistics agency this week from publishing an unemployment rate for October for the first time since the government started tracking the series in 1948. Policymakers, investors, businesses and households will have to wait for December data for clarity on inflation and the health of the labor market.

"The lack of detail and the absence of data collection during the shutdown introduce a degree of skepticism that's hard to ignore," said Olu Sonola, head of U.S. economic research at Fitch Ratings. "We will need to wait until next month for a clearer read on inflation."

The CPI rose 2.7% on a year-over-year basis in November after increasing 3.0% in the 12 months through September. Economists polled by Reuters had forecast the CPI would advance 3.1%. The CPI gained 0.2% over the two months ending in November. The BLS said it "cannot provide specific guidance to data users for navigating the missing October observations."

The smaller-than-expected increase in the CPI was likely the result of data collection being delayed late into November, when retailers offered holiday season discounts. Economists expect an acceleration in December, which would increase pressure on households facing affordability challenges that have been partly blamed on import tariffs.

Beef prices increased 15.8% on a year-over-year basis in November, while the cost of coffee surged 18.8%. Electricity prices rose 6.9%.

Egg prices, however, decreased 13.2% and gasoline prices rose only 0.9%. New motor vehicle prices increased 0.6% on a year-over-year basis. It could take some time for consumers to see lower prices from the White House's rollback of duties on some goods including beef, bananas and coffee, economists said.

President Donald Trump's sweeping import duties have raised prices for many goods, though the tariff pass-through has been gradual as businesses worked through inventory accumulated prior to the trade policy tightening and also absorbed some of the taxes, evident in the small rise in new motor vehicle prices.

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, calculated that retailers had passed on about 40% of tariffs by September, adding that "we expect that proportion to climb gradually to 70% by March and then stabilize."

U.S. stocks were trading higher and Treasury yields were lower. The dollar slipped against a basket of currencies.

TARIFFS ARE HURTING CONSUMERS

Economists say the tariff burden is falling disproportionately on lower-income households, who have little or no savings buffer and have also experienced slower wage growth relative to other workers.

Trump, who won the 2024 presidential election on promises to tame inflation, has in recent weeks alternated between dismissing affordability problems as a hoax, blaming former President Joe Biden, and promising that Americans will benefit from his economic policies next year.

Excluding the volatile food and energy components, the CPI increased 2.6% on a year-over-year basis in November. The so-called core CPI rose 3.0% in September. Core CPI inflation increased 0.2% over the two months ending in November.

The Federal Reserve tracks the Personal Consumption Expenditures Price indexes for its 2% inflation target.

The PCE price measures are calculated from some components of the CPI and PPI baskets. The PPI report for October was canceled. The producer inflation report will now be released in mid-January. The government has yet to set a new release date for November's PCE price data. Both PCE price measures were well above target in September.

The Fed last week cut its benchmark overnight interest rate by another 25 basis points to the 3.50%-3.75% range, but signaled borrowing costs were unlikely to fall further in the near term as the U.S. central bank awaits clarity on the direction of the labor market and inflation.

Fed Chair Jerome Powell told reporters in a post-meeting press conference that "it's really tariffs that are causing most of the inflation overshoot."

In a separate report, the Labor Department said initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 224,000 for the week ended December 13, reversing the prior week's surge and suggesting labor market conditions remained stable in December.

Claims have see-sawed in recent weeks, reflecting challenges adjusting the data around the Thanksgiving holiday. The tone of the labor market has not changed much, with employers reluctant to hire more workers, but not embarking on mass layoffs either.

Economists say Trump's tariffs have caused an unexpected shock for businesses, which have responded by pulling back on increasing head count.

A survey of 548 chief financial officers at firms with one to more than 1,000 employees showed on Wednesday that they continued to cite tariffs as a top concern. The survey was conducted by the Richmond and Atlanta Federal Reserve banks in conjunction with Duke University's Fuqua School of Business.

The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of December's employment report. Nonfarm payrolls increased by 64,000 jobs in November, the BLS said on Tuesday.

The employment report for December will be released on schedule in January. Though the unemployment rate was at 4.6% in November, the highest level since September 2021, it was distorted by technical factors related to the shutdown.

Tepid hiring is causing long bouts of unemployment for some workers who have lost their jobs. The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 67,000 to a seasonally adjusted 1.897 million during the week ending December 6, the claims report showed.