The first inflation reading since the historic 43-day government shutdown arrived Thursday morning, and it’s not what Wall Street expected. The Consumer Price Index for November came in at 2.7% annually, significantly cooler than the 3.1% economists had predicted, raising immediate questions about whether we’re seeing genuine disinflation or just statistical noise from a data collection process that was anything but normal.
Core inflation, which strips out volatile food and energy prices, dropped even more dramatically to 2.6%, the lowest reading since March 2021. That’s a full 0.4 percentage points below consensus expectations. For a Federal Reserve that just cut rates for the third consecutive time and signaled a cautious path forward, this report is either vindication or a statistical mirage.
The Asterisk That Won’t Go Away
Before anyone pops champagne over inflation finally approaching the Fed’s 2% target, there’s a massive caveat: the Bureau of Labor Statistics couldn’t collect October data at all due to the shutdown, and November data collection didn’t begin until November 14, more than halfway through the month. As Victoria Fernandez of Crossmark Global Investments bluntly put it, “This is not going to be a clean CPI number.”
The BLS acknowledged as much in its release, noting it won’t publish month-over-month changes for November because there’s no October baseline to compare against. What we’re left with is a two-month comparison: prices rose just 0.2% from September to November combined. That’s remarkably tame, but it’s also measuring a period that includes the heart of holiday discounting season. Think Black Friday, Cyber Monday, and the aggressive promotional push that retailers deployed to move inventory.
Fed Chair Jerome Powell has already advised policymakers to view this data with “a somewhat skeptical eye.” That’s central banker speak for “we have no idea if this is real.”
What The Numbers Actually Show
Despite the data quality concerns, the breakdown offers some genuinely encouraging signals. Shelter costs, the stubborn category that has kept inflation elevated for over two years, rose just 3% annually, down from 3.6% in September. That’s a meaningful deceleration in a component that makes up roughly one-third of the CPI basket.
Food prices also cooled, rising 2.6% year-over-year compared to 3.1% in September. Energy costs increased 4.2%, with fuel oil spiking 11.3% and natural gas up 9.1%. Gasoline remained relatively contained at just 0.9% higher.
But don’t let the headline numbers obscure what’s still painful at the checkout counter. Coffee prices have soared 18.8% from a year ago. Ground beef is up 14.9%. These aren’t abstract statistics. They’re the reality facing Americans every time they shop for groceries.
The Tariff Factor: Still Biting, But Maybe Softening
The Trump administration’s tariff policies have been the elephant in every inflation room this year. Bloomberg Economics’ Anna Wong noted in her analysis that “inflation in most tariff-exposed goods categories is peaking or has already peaked. Businesses slashed prices in November amid holiday sales events.”
That observation matters because the administration rolled back tariffs on key grocery items (beef, coffee, bananas, and tropical fruits) in mid-November, responding to political pressure over food costs. The tariff revenue data tells the story: November collections dropped to $30.75 billion from $31.35 billion in October, the first month-over-month decline since the tariff regime began in April.
Still, supply chain experts caution that tariff relief won’t immediately translate to lower shelf prices. Inventory purchased under higher tariff rates still sits in warehouses waiting to be sold. “Consumers haven’t seen the really big impact of any inflation yet because it is sitting in the ‘middle mile,'” explained Zachary Rogers, lead author of the Logistics Managers’ Index.
What This Means For Your Wallet And The Fed
The immediate market reaction was predictably optimistic. Traders increased bets on a March rate cut, and equity futures ticked higher. But here’s the uncomfortable truth: even at 2.7%, inflation remains above the Fed’s 2% target, and the path forward is clouded by extraordinary data uncertainty.
The Fed’s December dot plot projected just one rate cut in 2026, with the median expectation putting rates at 3.25%-3.5% by year’s end. That’s more hawkish than market pricing, which has been anticipating rates falling toward 3% or lower. Powell explicitly stated the Fed is “well positioned to wait and see how the economy evolves,” hardly a ringing endorsement of imminent easing.
Bloomberg Economics sees potential for 100 basis points of cuts in 2026, more than double current market expectations of roughly 60 basis points. But that forecast hinges on inflation continuing its downward trajectory and labor market weakness emerging, neither of which is certain.
The Affordability Crisis Isn’t Going Anywhere
Here’s what gets lost in the inflation rate debate: even when the rate falls, prices don’t. They just rise more slowly. As EY-Parthenon chief economist Gregory Daco warned, “I don’t think Americans should brace for surging inflation, but I do think there is a growing risk of a persistent affordability crisis.”
The cumulative price increases since the pandemic remain staggering. Beef prices have climbed 55% over five years. Housing remains out of reach for over 75% of American households, according to Bankrate. The inflation rate can technically be “under control” while everyday life remains expensive for millions of families.
Apollo’s chief economist Torsten Sløk crystallized the Fed’s dilemma: “There’s actually not much they can do about that.” Monetary policy can cool overall price growth, but it can’t undo years of accumulated increases in housing, healthcare, and education. These are the essential spending categories that now consume ever-larger shares of household budgets.
The Bottom Line
Thursday’s CPI report is good news wrapped in significant caveats. The 2.7% headline and 2.6% core readings suggest inflation pressure is easing, potentially faster than anyone expected. But the data collection disruptions from the shutdown mean we won’t have a clean read on price trends until the December report arrives in mid-January.
For the Fed, this buys time but doesn’t change the fundamental calculus. For consumers, it offers hope that the worst of the price surge may be behind us, even if “behind us” doesn’t mean prices will actually fall.
The real test comes in 2026, when tariff policy uncertainty, potential fiscal changes, and the lagged effects of monetary tightening all converge. Today’s number is just one data point in a much longer story, and it came with an asterisk the size of a 43-day government shutdown.
Sources
- Bureau of Labor Statistics – Consumer Price Index November 2025
- CNBC – CPI Inflation Report November 2025
- CBS News – CPI Report Shows Inflation Rose at 2.7% Annual Pace
- Bloomberg – US CPI Report November 2025 Live Coverage
- NBC News – Long-delayed Inflation Data Released
- Trading Economics – United States Inflation Rate
- Yahoo Finance – Federal Reserve December 2025 Coverage
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