US consumer prices increased by the most in seven months in November, but that is unlikely to discourage the Federal Reserve from delivering a third consecutive interest rate cut next week against the backdrop of a cooling labour market and rental costs.
Markets worldwide were in a subdued mood as they awaited the inflation data. Wall Street’s main indexes rose on Wednesday after the in-line inflation reading kept intact bets on the Fed rate cut.
Most of the rise in inflation reported by the US labour department on Wednesday came from higher food prices as well as more expensive motel and hotel rooms. Rents, which have been the major driver of inflation, increased at the slowest pace since July 2021. That bodes well for the inflation outlook.
“The data have given the Fed the ‘all clear’ for next week, and today’s inflation data keep a January cut in active discussion,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
The consumer price index rose 0.3 per cent last month, the largest gain since April after advancing 0.2 per cent for four straight months.
In the 12 months through November, the CPI climbed 2.7 per cent after increasing 2.6 per cent in October. Yields on US government bonds also slipped after the data, with the yield on the 10-year note last at 4.2108 per cent.
Sensex trend
Benchmark equity indices Sensex and Nifty closed higher in restricted trade on Wednesday as investors awaited the US inflation data.
The Sensex rose 16.09 points or 0.02 per cent to close at 81526.14, while the Nifty advanced 31.75 points or 0.13 per cent to settle at 24641.80.
“The Indian market exhibited subtle movements, reflecting mixed sentiments prevailing in global markets ahead of the US CPI inflation data release,” Vinod Nair, head of research, Geojit Financial Services, said.
The rupee, meanwhile, fell to a record intra-day low of 84.87 against the dollar on Wednesday. It came amid expectations of a possible rate cut from the new RBI governor in February even as participants awaited the US inflation data.
Intervention from the central bank saw the domestic currency recovering its ground and ending at 84.83.
“With limited directional movement, the rupee’s range is expected to stay between 84.70 and 85.00.” Jateen Trivedi of LKP Securities said.