Federal Reserve Struggles to Cool Inflation to 2% While Pursuing Loose Monetary Policy

Brian Turner
12 Dec, 2024
Washington, D.C.

Producer price inflation increased 0.4% in November from the previous month and accelerated from 0.3% in October, according to the latest data released by the U.S. Bureau of Labor Statistics. 

Core producer price inflation, which excludes volatile food and energy prices, accelerated to a monthly 0.3% from 0.2% and stalled at an annual 3.4%. 

On Wednesday, the government agency reported consumer prices accelerated in November, largely driven by higher costs of shelter, medical care, and vehicles. 

The annual consumer price inflation increased to 2.7% in November from 2.6% in October, largely driven by persistent increases in the cost of shelter, medical care, new and used vehicles, and furnishing. 

Core consumer price inflation, which excludes volatile food and energy prices, held at 3.3%, unchanged from September and October, the U.S. Bureau of Labor Statistics reported Wednesday. 

On a monthly basis, overall and core inflation rose 0.3%, largely driven by an increase in shelter prices. 

Investors have bid up stocks in 2024 in the hopes that inflation is on a sustained downward path and likely to reach the Fed's target rate of 2% in the near future. 

However, inflation has stalled near 3% for nearly six months and shows no sign of easing. In addition, most of the slowdown in inflation is reflecting a sharp fall in energy prices, which are not impacted by the Fed's actions. 

Core consumer price inflation is likely to stay above 3% in 2025 and beyond for two reasons: first, because of wage inflation of 4%, and second, most service providers are still passing on higher prices to consumers at a faster than 3% annual rate.