NEW YORK (Reuters) – U.S. consumer prices increased further in November as the cost of goods and services rose broadly amid supply constraints, leading to the largest annual gain since June 1982, which could encourage the Federal Reserve to quickly wind down its bond purchases.
The consumer price index rose 0.8% last month after surging 0.9% in October, the Labor Department said on Friday. In the 12 months through November, the CPI accelerated 6.8%, as expected by economists polled by Reuters, following a 6.2% advance in October.
MARKET REACTION:
STOCKS: S&P e-mini futures extended gains and were last up 0.75%, pointing to a strong open on Wall Street
BONDS: Yields on benchmark 10-year notes fell to 1.4974%. Two-year Treasury yields slipped to 0.6945%
FOREX: The dollar index pared gains and was 0.06% firmer
COMMENTS:
RUSSELL PRICE, CHIEF ECONOMIST, AMERIPRISE FINANCIAL SERVICES INC, TROY, MICHIGAN
“This report solidifies the view of what the Fed’s path will be. This further alleviates any doubt as to an acceleration of their tapering to come out of next week’s meeting. What will be key to watch from the Fed is their dot plot to see committee members’ views of when the path of hikes will come over the next two years.
“Today’s report probably doesn’t change what the market’s perspectives on when rate hikes begin, which consensus shows is some time in the second quarter.
“The inflation trends continue, but the trends are a little bit worrisome right now.”
MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON
“Today’s CPI report confirmed what most Americans already know, and that is prices across a number of the components have been increasing and increasing by the largest amounts we’ve seen in decades. There’s not a big surprise here, most of this data was expected.
“The Fed is set to accelerate the tapering, and that means they’ll end in March and they’re likely to begin to raise rates at that point. Again, most of that is priced into the market already, and the Fed is behind the curve and they need to catch up. They’ll start to do that at next week’s meeting.
“The market’s positive reaction is interesting in that this data suggests that the Fed will have to tighten monetary policy more aggressively than just a couple of month ago, and the market’s acceptance of that is a little surprising to me.”
THOMAS HAYES, MANAGING MEMBER, GREAT HILL CAPITAL LLC, NEW YORK
“The market is up is because the numbers were pretty much in line with expectations, certainly on the core CPI front, and did not dramatically exceed as feared. The market doesn’t like surprises.”
“The market has pretty much accepted the fact that they’ll likely accelerate the tapering to end in March versus originally in June, that’s known since the Powell pivot last week and now in line with expectations. The key variable now is how quickly will they be hiking rates and we won’t know that until after March.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“The numbers came in just a bit higher than we’re looking for.”
“The good news is that over the past 12 months it didn’t exceed the top point. From that perspective it’s not going to cause jitters in the market because elevated inflation is already priced into the market. But this does mean we’re probably going to be faced by a more hawkish Fed and a change in monetary policy is likely to happen in the latter part of the second quarter of 2022.”
“I don’t think it’s going to impact the equity markets.”
JOHN CANAVAN, LEAD ANALYST, OXFORD ECONOMICS, NEW YORK
“From a market perspective, the response was clearly just relief. It wasn’t worse than expected. The headline figures were very much in line with expectations, particularly on a year-over-year basis. And we’ve seen stocks rally, the dollar dip, and Treasuries rebound. That’s clearly just a knee-jerk response to a little bit of relief given how often we have seen inflation figures outpace expectations. At least for this month, as high as inflation is, it was no worse than markets had previously expected.”
“With figures in line with expectations, I assume Fed expectations were similar, so this shouldn’t really change anything one way or another. We continue to look for the Fed to pare down asset purchases next week or at least announce it next week.”
(Compliled by the global Finance & Markets Breaking News team)
