Inflation Tepid in November; UI Move Higher

The Consumer Price Index (CPI) rose 0.2% in November from October and held at the 1.2% pace on a year-over-year basis, the same as in October. That is off from the 2.3% pace in February before the onset of the COVID crisis. So far, we have seen more of a disinflationary reaction than inflationary, despite the supply chain disruptions that have been triggered.

Gains in energy, airfare, hotel and apparel prices more than offset a drop in prices at the grocery store and for prepared food at elementary schools. The drop in food prices at elementary schools largely reflects the shift to boxed lunches instead of the prepared meals students could buy and receive when they were attending physical schools. The problem for schools has been finding the children to feed as many are now starting to drop out of education entirely.

A slight pickup in travel during the Thanksgiving holiday provided a boost for airfares and hotel rooms, but prices in the travel and tourism industry are still down at a double-digit pace from a year ago. We saw a sharp jump in the cost of admission to sporting events, which are supply-constrained due to social distancing measures.

The deceleration in overall prices masks the pain that those hit hardest by the crisis are feeling in their food and transportation budgets. A surge in COVID outbreaks at meat and poultry processing plants has pushed up the costs of animal proteins and compounded food insecurity. Meat prices are still up over 7% from a year ago. Eggs and milk products are also substantially higher from a year ago and driving year-over-year gains in the cost of food at grocery stores.

Another area to watch is the cost of mass transit, which is rising and further squeezing the budgets of low-wage, essential workers. Bus fares between cities jumped; they had fallen for months but remain nearly 14% higher from a year ago. That is a large price to pay if you have to travel from a large city to a job in the suburbs.

Core CPI, which strips out the volatile food and energy components, rose 0.2% between November and October. The index was up at a 1.6% pace from a year ago, the same as October. Core CPI inflation peaked at a 2.4% year-over-year pace in February, before the onset of the current crisis.

Separately, initial unemployment insurance (UI) claims for the week ending December 5 jumped to a little more than 1.3 million before adjusting for seasonal shifts. Gains were broad-based and spread between traditional and special pandemic unemployment insurance claims. Some of the increase represented a catch-up for claims during the week of Thanksgiving. Sadly, the four-week moving average also rose during the week. Next week will provide our first look at the survey week for the December employment report. It looks like we will lose ground on employment again in December.

Some 14.3 million people are now poised to lose access to the extra benefits on December 26. That is up from 13 million a few months ago. Congress needs to act to provide more relief for the millions who are poised to lose benefits. These include extensions for the long-term unemployed and special benefits for gig and furloughed workers who do not qualify for the traditional unemployment insurance provided by the states.

Bottom Line
The economy is slowing and will likely begin to lose ground again before year-end and into the start of the first quarter. That has dampened inflation and wage gains. The Federal Reserve is doing all it can to provide support for the economy, but is no substitute for Congress, which controls the purse strings and the funds needed for families to cover the basics of food and shelter. We now know that expansion to unemployment insurance likely curbed the pace of infections during the spring and summer as it kept workers from trying anything to make ends meet, which lowered their exposure to the virus. That is not the case today.

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