The consumer price index rose 0.3% in November from the previous month, marking a subtle but notable shift in inflation’s trajectory after months of relative stability. Year-over-year, inflation now stands at 2.8%, according to the Labor Department’s latest report released Wednesday.
These numbers caught Wall Street slightly off guard. Economists surveyed by Bloomberg had projected a more modest 0.2% monthly increase and 2.7% annual rate. The difference may seem insignificant, but in the high-stakes world of monetary policy and market expectations, these margins matter.
Core inflation, which excludes volatile food and energy prices and is considered a better signal of underlying price pressures, increased 0.3% from October and 3.0% from a year earlier. This metric remains stubbornly above the Federal Reserve’s 2% target despite twenty months of aggressive monetary tightening.
“We’re seeing surprising resilience in consumer spending despite higher interest rates,” said Diane Swonk, chief economist at KPMG. “Americans are still flush with savings accumulated during the pandemic, and they’re willing to pay higher prices for services, particularly in recreation and hospitality.”
A closer look at the data reveals an economy still struggling to find its post-pandemic equilibrium. Service prices, excluding energy services, climbed 0.4% from October and 3.6% from last year. This category, which includes everything from haircuts to healthcare, has proven particularly resistant to the Fed’s efforts to cool demand.
Housing costs, which account for about a third of the overall CPI, continued their upward march with shelter inflation rising 0.4% from October. While most economists expect this component to moderate in coming months as new leases reflect cooling rental markets, the lag effect continues to push headline numbers higher.
“Housing remains the stubborn core of our inflation problem,” noted Mark Zandi, chief economist at Moody’s Analytics. “The good news is we’re seeing early signs that this pressure valve is starting to release, but it’s a slow process that will take several more months to fully materialize in the data.”
The report wasn’t uniformly concerning. Energy prices declined 0.2% in November, providing some relief at the gas pump for consumers heading into the holiday season. Food inflation remained subdued at 0.2% monthly growth, though grocery prices are still 2.9% higher than a year ago.
What’s puzzling economists is the continued strength in consumer spending despite the highest interest rates in over fifteen years. Retail sales data released yesterday showed a 0.4% increase in November, exceeding forecasts. This resilience suggests that households, bolstered by a strong job market and rising wages, are absorbing higher prices rather than cutting back.
Federal Reserve officials meeting this week will find themselves in a particularly challenging position. After holding interest rates steady between 5.25% and 5.50% since July, market participants had been increasingly confident about rate cuts beginning early next year. Today’s inflation reading complicates that narrative.
“The Fed wants to see a consistent pattern of disinflation before pivoting to rate cuts,” explained Joseph Brusuelas, chief economist at RSM US. “This report doesn’t derail the progress we’ve made, but it does suggest the last mile of the inflation fight may be bumpier than hoped.”
Financial markets reacted predictably to the news. Treasury yields jumped, with the rate on the two-year note, which is particularly sensitive to Fed policy expectations, climbing seven basis points to 4.22%. Stock futures trimmed earlier gains as investors reassessed the likelihood of imminent monetary easing.
What’s becoming clear is that the post-pandemic economy doesn’t fit neatly into historical models. Labor force participation remains below pre-pandemic levels despite robust job creation. Supply chains have largely normalized, yet certain goods categories continue to see elevated prices. And consumer behavior has fundamentally shifted, with spending patterns that defy traditional cyclical patterns.
“We’re in uncharted waters,” said Beth Ann Bovino, chief U.S. economist at S&P Global Ratings. “The pandemic created distortions that are still working their way through the economy, making it extraordinarily difficult to predict how quickly inflation will return to target.”
For ordinary Americans, the inflation report translates to continued pressure on household budgets. While wage growth has remained strong, averaging 4.1% annually according to the latest data, inflation has eroded much of those gains. The result is a population that feels increasingly squeezed despite robust economic indicators.
A recent survey by the New York Fed found that median one-year inflation expectations rose to 3.4% in November, suggesting consumers are bracing for continued price pressures. This perception matters because expectations can become self-fulfilling if workers demand higher wages and businesses raise prices in anticipation of future increases.
For the Fed, this psychological component of inflation remains perhaps the most difficult to control. Despite Chair Jerome Powell’s repeated assurances that the central bank will do whatever it takes to restore price stability, the public’s inflation expectations have proven difficult to anchor.
“The Fed has a credibility challenge,” observed Julia Coronado, president of MacroPolicy Perspectives. “Despite their tough talk and action, consumers and businesses aren’t fully convinced inflation is heading back to 2% anytime soon.”
As we enter 2026, the inflation picture remains more complex than many had anticipated when the Fed began its tightening campaign. The path back to the central bank’s 2% target is proving longer and more winding than initially forecast. For investors, businesses, and households alike, that means continued uncertainty and the need for adaptability in an economic landscape that refuses to follow the script.
