On November CPI – Inflation Definitively Peaks

Excluding OER, both headline and core CPI were negative for the month of November. Now all major ways of measuring inflation, with or without OER, have definitively peaked. It makes sense analytically to remove OER because it is so laggy. Higher-frequency data on rents of houses have clearly rolled over. With the Powell Fed, we can have little confidence that they will allow this to change their narrative or actions at tomorrow’s FOMC. The SEP may well raise the funds rate “dot” for 2023, as Powell has warned. But the dots are worthless forecasts, as history has shown. More important is the slowing pace of rate hikes that give the gift of time for inflation to keep moderating before the Fed can cause an unnecessary recession.