Inflation in the United States showed a sharper-than-anticipated slowdown in November, offering a glimmer of hope. However, economists have raised red flags, suggesting the recent federal government shutdown may have skewed the data, leaving many Americans still grappling with the high cost of living.
Key Figures and the Shutdown Shadow
The US Labor Department reported on Thursday that the Consumer Price Index (CPI) increased by 2.7% year-on-year in November. This figure was lower than market forecasts and marked a decline from the 3% rate recorded in September. Despite the drop, inflation remains stubbornly above the Federal Reserve's long-term target of 2%, highlighting ongoing cost pressures within the economy.
This crucial inflation report arrived eight days later than scheduled due to the 43-day federal government shutdown. The disruption not only delayed the release but also hampered data collection, forcing the cancellation of the October CPI report entirely. Consequently, investors, businesses, and policymakers were left without an official inflation update for nearly two months, since late September.
Economists Urge Caution Amid 'Noisy' Data
Leading financial experts have advised treating the November numbers with significant caution. Diane Swonk, Chief Economist at KPMG, stated the data were "likely a bit distorted" because of the shutdown. While acknowledging the cooling trend as good news, she noted that the disruption to government operations and contracting might have temporarily suppressed price pressures.
Echoing these concerns, Kay Haigh, Global Co-Head of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management, described the November inflation figures as "noisy." She pointed out that the absence of October data made month-on-month comparisons impossible and that the truncated data-gathering process could have introduced systematic biases. As a result, many analysts believe a clearer picture of the inflation trajectory will only emerge with the release of the December CPI report in mid-January, just before the Fed's next policy meeting.
Persistent Pressures and Political Repercussions
While headline inflation eased, the details reveal persistent pressures. Energy prices surged by 4.2% in November, driven by higher fuel oil costs. Core inflation, which excludes the volatile food and energy categories, rose 2.6% year-on-year, hitting its lowest level since March 2021.
Despite the statistical moderation, consumer sentiment remains deeply strained. High prices for essentials like groceries, insurance, utilities, and housing continue to burden households. An AP-NORC poll revealed that most US adults have noticed unusually high prices for basic goods and holiday purchases recently. Roughly half found it harder to afford gifts, with many delaying major purchases or cutting back on non-essential spending. Analysts note this economic pain has clear political repercussions.
Inflationary pressures have been partly linked to former President Donald Trump's import tariffs, which imposed double-digit taxes on a wide range of imports, including targeted duties on steel, aluminium, and automobiles. Although the tariffs have been less inflationary than initially feared, economists confirm they continue to exert upward pressure on prices and complicate the Federal Reserve's policy decisions.
The uncertainty from tariff policies is also hitting businesses. Footwear manufacturer Wolverine Worldwide cited higher import costs as a reason for raising prices on some products and freezing hiring and investment. CEO Christopher Hufnagel lamented that the unpredictability of tariff policy makes long-term planning exceedingly difficult.
In its ongoing balancing act, the Federal Reserve cut interest rates for the third time this year last week. However, it signalled a cautious path ahead, indicating the possibility of just one more rate cut in 2026 as it navigates between easing inflation and signs of a slowing job market.
