November Inflation Surprisingly Cool, Though Data Distortions Remain

Key Takeaways

• The annual CPI inflation rate fell to 2.7% in November from 3.0% in September, more than economists expected.
• Disruptions due to the government shutdown mean Thursday’s data was distorted, though analysts say there may be a more durable downward trend.
• Analysts expect the Fed to put more stock in the December CPI report, which will be more complete, when it is released in January.

Inflation slowed to a surprising degree in November, but with some important caveats. “Today’s data shows a widespread cooling of inflationary pressures, although the data should be treated with some caution, given quality issues,” explains Preston Caldwell, senior US economist at Morningstar.

Data released Thursday by the Bureau of Labor Statistics showed that the Consumer Price Index rose 2.7% from year-ago levels for the month. That’s less than the 3.1% growth economists were expecting and the 3.0% annual gain in September. Excluding volatile food and energy prices, core inflation rose 2.6% on an annual basis for November. Over the two months between September and November, core inflation rose 0.2%.

Prices for goods including appliances, toys, and clothing fell, though car prices continued to rise. Inflation in the services category, which includes shelter prices like rent and housing costs, also slowed.

The numbers were highly anticipated on Wall Street after a weekslong delay stemming from the government shutdown in the fall. This also comes at a critical junction for the Federal Reserve, which for months has been facing a muddy economic outlook, as inflation has remained above its target and the jobs market has cooled.

While the surprising downward trend may bolster the case for further rate cuts for some on the Fed’s policy-setting committee, analysts warn that the report should be taken with a grain of salt. “It’s always important not to focus too much on a single month’s data,” Caldwell says.

Data Distortions

That’s especially true today. Because no CPI data was reported for October, the report did not include data on month-over-month changes in prices between then and November.

Additionally, analysts say that November’s price data was collected later in the month than usual and may have been distorted by end-of-year holiday sales. Samuel Tombs, chief US economist at Pantheon Macroeconomics, suggests that this could help explain a slump in airline fares and goods prices between September and November over a period when demand remained solid.

“We caution against reading too much into today’s report due to data collection issues,” write economists from Wells Fargo, who advise investors to take the report “with the entire salt shaker.” That said, there could still be indicators of a more durable trend. “Through the noise, we believe inflation is slowing on trend, even if today’s reading overstates the magnitude of the slowdown.”

Caldwell says, “I’m reluctant to dismiss data just because it’s surprising.” He thinks the drivers of lower shelter inflation have been present in falling market rents for months, though the speed of the drop between September and November is unusual. “That would point to some data quality issues,” he adds.

What Does November CPI Data Mean for the Fed?

Analysts say Thursday’s benign inflation data could make it easier for the Fed to cut interest rates in 2026, but they warn that the otherwise-noisy report likely isn’t enough for the FOMC to ease policy in January. The central bank eased policy in September, November, and December of 2025, and it is widely expected to hold rates steady at its meeting next month.

“The latest CPI numbers are encouraging for the Federal Reserve, but Fed Chair Jerome Powell has already warned against reading too much into the latest data due to distortions from the shutdown,” writes Bernard Yaros, lead economist at Oxford Economics.

“The canceling of the October report makes month-on-month comparisons impossible, for example, while the truncated information-gathering process given the shutdown could have caused systematic biases in the data,” writes Kay Haigh, global co-head of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management. He expects the Fed to focus more closely on the December CPI report, which will be released in January, as a more accurate read on the inflation picture.

Caldwell says a January cut is unlikely, but a March cut could be on the table if subsequent inflation data confirms November’s trend. He thinks ongoing weakness in the labor market could also help support a March cut.