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US Core Inflation Akin to the Fed’s Target Inflation Rate

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Inflation unchanged in November

With a fall in energy prices by 1.3% in November, the US CPI (consumer price index) was unchanged month-over-month in November as compared to a rise of 0.2% in October 2015. The core inflation rate in November—including all items aside from food and energy—rose 0.2%. This was the same rise as in September and October.

The fall in prices of all the major components in the energy index except electricity kept inflation unchanged. As a result, the Energy Select Sector SPDR Fund (XLE) fell 8.6% from the prior month as of December 15. Also, energy companies ExxonMobil (XOM), Royal Dutch Shell (RDS.A), and BP (BP) fell 1.8%, 9.9%, and 10.8%, respectively, over the same period.

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Inflation rose to 0.5% in November

Inflation rose 0.5% in November for the last 12 months as compared to a rise of 0.2% in October 2015.

The rise is mainly attributed to rising food prices that went up 1.3% on an annual basis. Whereas, the fall in energy prices by 14.7% over the past year contributed toward keeping inflation low.

In the food index, the index for food away from home rose 0.2% in November from the prior month and 2.7% over the last 12 months. The Consumer Discretionary Select Sector SPDR Fund (XLY) rose 0.55% as of December 15. Stocks like Dunkin’ Brands (DNKN) and McDonald’s (MCD) rose 1.1% and 0.58%, respectively, as of December 15.

Inflation stayed lower in November with a fall in energy prices. However, core inflation—excluding volatile items like food and energy—rose to 2.0% for the last 12 months. This was in line with the target inflation rate of 2.0% set by the Federal Reserve.

With core inflation inching toward the target inflation rate, it reaffirms a rate hike decision by the Fed during the FOMC (Federal Open Market Committee) meeting.

Let’s take a look at manufacturing growth with the Empire State Manufacturing Survey in the next article.

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