U.S. Inflation Likely Hit 18-Month High in November as Tariffs Bite

American households likely faced increased affordability pressures in November, as consumer prices probably rose at the fastest annual rate in approximately a year and a half. Economists suggest that higher import tariffs are contributing to this rise.

A Reuters survey of economists anticipates that the Consumer Price Index (CPI) increased by 3.1% year-on-year in November. If confirmed, this would represent the most significant increase since May 2024. This figure compares to the 3.0% increase recorded in the 12 months leading up to September. According to economists, this data would confirm that progress in lowering inflation has come to a standstill.

The Labor Department's Bureau of Labor Statistics (BLS) is scheduled to release the delayed November CPI report on Tuesday. This delay resulted from a 43-day government shutdown that disrupted the collection of October data. Consequently, the BLS will not publish month-to-month CPI changes, and the October CPI release was entirely canceled because price data could not be collected retroactively.

The shutdown also impacted labor market reporting, marking the first time the U.S. government has failed to publish an unemployment rate for October. The BLS stated that it would release year-on-year CPI and core CPI figures for November, along with a limited number of additional indexes that do not rely on in-person data collection.

Economists are raising concerns that inflationary pressure is returning, particularly in the prices of goods. Andy Schneider, a senior U.S. economist at BNP Paribas, noted that companies in the goods-producing sectors are increasingly passing the costs associated with tariffs onto consumers.

That said, the reality is a bit more complicated. some analysts have suggested that November inflation could potentially fall below expectations. This is because data collection extended further into the month, a period when retailers typically offer holiday discounts. This could lead to lower prices for items such as furniture and recreational goods.

Citigroup economist Veronica Clark cautioned that any unusual weakness in November goods prices might be temporary, with a rebound likely in December as retailers adjust their prices.

President Donald Trump's extensive import duties have contributed to higher prices for numerous consumer goods, although the effect has been gradual. Initially, businesses relied on pre-tariff inventories and absorbed some of the cost increases, which helped to limit price increases earlier in the year, including those for new vehicles.

Economists believe that this buffer is now diminishing. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, stated that retailers had passed on approximately 40% of tariff costs to consumers by September. He anticipates that this figure will rise to around 70% by March before stabilizing.

Economists also note that lower-income households are disproportionately affected by this burden. These households tend to have limited savings and have experienced slower wage growth compared to higher-income workers.

Core CPI, which excludes food and energy prices, is expected to increase by 3.0% year-on-year in November, matching September's rate. Persistent increases in rents and goods prices are likely to offset declines in airfare and hotel/motel room rates.

The Federal Reserve monitors the Personal Consumption Expenditures (PCE) price indexes to guide its 2% inflation target. That said, the reality is a bit more complicated. the October Producer Price Index report was canceled, and November's PPI data will not be released until mid-January. The government has not yet announced a new release date for November's PCE inflation data. In September, both PCE inflation measures remained above the Fed's target.

Last week, the Federal Reserve lowered interest rates by 25 basis points, bringing its benchmark rate to a range of 3.50% to 3.75%. That said, the reality is a bit more complicated. the Fed signaled that further cuts are unlikely in the near future, citing the need for clearer signals from inflation and labor market data.

Fed Chair Jerome Powell told reporters that tariffs were largely responsible for the recent inflation overshoot. While the White House has begun to roll back duties on certain goods, including beef, bananas, and coffee, economists suggest that it could take some time for consumers to see lower prices.

Sara House, a senior economist at Wells Fargo, cautioned that firms often reassess pricing at the beginning of the year, raising the risk of another surge in goods inflation during the first quarter.

The November inflation report will likely reinforce concerns that disinflation in the U.S. has stalled, coinciding with rising policy uncertainty. Tariffs are re-emerging as a driver of inflation, particularly for goods, and their impact is increasingly felt by lower-income households. With incomplete data following the government shutdown and inflation remaining above target, the Federal Reserve is likely to maintain a cautious approach, keeping interest rates higher for a longer period as it awaits clearer evidence that price pressures are easing.