US stocks get hot as inflation cools by more than expected

The SPDR S&P 500 ETF extended its premarket gains after inflation data came in well below economists’ expectations, offering some fresh justification for the interest rate cuts already delivered by the Federal Reserve and prompting traders to bet on the prospect of more to come.

On an annual basis, core CPI inflation rose just 2.6% year over year, while the consensus estimate was for 3%. It’s now at its lowest level since March 2021.

Core CPI inflation increased from 0.159% from November relative to September.

(October data collection for this series was marred by the government shutdown.)

Analysts warned that this lack of data, and decisions made by the Bureau of Labor Statistics on how to handle it, muddied the water for this inflation print and overstate how much price pressures moderated.

“The BLS just assumed rent/OER were zero for October,” wrote Omair Sharif, president of Inflation Insights. “I am sure they have a good technical explanation for this, but the only way you get a two-month average for rent of 0.06% and OER at 0.135% is assuming October was zero.”

Nonetheless, that on its own is not enough to account for the magnitude of how much inflation cooled. Traders expect that this softer-than-expected inflation may provide more scope for the Federal Reserve to cut its policy rate again soon as the unemployment rate creeps higher.

Event contracts show that the likelihood of the US central bank reducing its policy rate in January rose from about 25% to above 30% following this release.

(Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.)

“The November CPI report suggests that a loosening labor market and moderating wage growth, combined with limited pass-through of tariffs and moderating shelter costs, are finally corralling inflation,” Bank of Montreal economist Sal Guatieri wrote. “The FOMC will take much comfort from the report, allowing it to focus on addressing the weakness in labor markets.”

The Federal Reserve, for what it’s worth, prefers to track core PCE inflation as an underlying gauge of price pressures, but many elements in the CPI also go into that metric, as well.

Over the past 30 years, annual core CPI inflation has run about 40 basis points hotter than core PCE.