U.S. inflation eased in November, which economists said was likely due to distortions caused by the government shutdown, creating an uncertain picture for the Federal Reserve as it grapples with rising unemployment at the same time.
The latest consumer price index, released Thursday by the Bureau of Labor Statistics, rose 2.7 percent compared to the same period last year. That fell short of the previous pace of 3 percent and was well below economists' expectations of a 3.1 percent increase.
“Core inflation,” which the central bank uses as a measure of underlying inflation because it ignores volatile factors such as energy and food prices, rose 2.6 percent annually. Most recently it was 3.1 percent.
The latest inflation report comes at a crucial policy moment for the White House. With prices still stubbornly high, voters increasingly say they are dissatisfied with President Trump's handling of the economy and frustrated with the slow pace of improvement, according to recent polls.
Mr. Trump has tried to argue that conditions have improved under his leadership. Last night he delivered that message to the American public, emphasizing in a highly combative speech that inflation is under control, wages are rising and any current turmoil in the economy is the fault of his predecessor, President Joseph R. Biden Jr. “I’m letting these high prices come down, and I’m going to do it very quickly,” he said.
Kevin A. Hassett, the director of the White House National Economic Council who is considered a leading candidate to become the next Fed chair, called the inflation report an “absolute blockbuster” on Thursday and told Fox Business that most economists had made a mistake in their previous forecasts. “I'm not saying we're going to declare victory on the price issue yet,” he said, “but this is just an amazingly good CPI report.”
The White House Council of Economic Advisers also released a series of social media posts saying the latest report shows Mr. Trump's policies are working. “This report is clear: prices are stable and wages are outpacing inflation,” the CEA said, pointing to food, airfares and hotels as some areas of improvement.
Both headline and core inflation were significantly lower than expected in November. But economists have warned against reading too much into the data. The BLS was forced to cancel the publication in October, citing data collection complications caused by the more than 40-day government shutdown. The lack of an October report meant that no month-on-month rate was released Thursday for either headline inflation or the hundreds of goods and services it tracks, creating an incomplete picture of economic developments at a critical time for the central bank.
But prices rose 0.2 percent from September, a monthly growth rate of 0.1 percent. That's much slower than the 0.3 percent pace in recent months.
The shutdown also disrupted data collection for November, and economists warned that certain quirks were artificially pushing down inflation for the period. For example, all November data was collected after the government reopened in mid-November, meaning there were more prices during Black Friday sales than in a normal year.
Ahead of its release, Alan Detmeister, a former Fed economist now at UBS, said the report was a “very poor reflection of reality.”
That echoed a warning from Fed Chairman Jerome H. Powell, who said at a news conference last week that this week's incoming data, which included November's jobs report, should be viewed with a “skeptical eye.”
Jonathan Hill, head of U.S. inflation strategy at Barclays, said the latest CPI report “should not be taken literally or guide monetary policy.”
He added that the Fed “will and should wait for December data,” which will be released in January, to draw conclusions about the direction of inflation or the path forward for interest rates.
Inflation has risen this year because of the high tariffs that Mr. Trump has imposed on almost all of America's trading partners. Companies managed to mitigate some of the initial impact by building up inventories before the tariffs were imposed, helping to keep overall inflation lower than economists and policymakers had once feared. Many companies chose to cover the higher costs themselves, resulting in lower profit margins.
But now that companies have used up their inventories or exhausted other options to avoid tariffs, the question for the Fed is how much more tariffs will drive up consumer prices in the coming year and at what point inflation will fall back toward the central bank's 2 percent target.
“It's actually the tariffs that are driving most of the excess inflation,” Powell said last week after the Fed announced its decision to cut interest rates by a quarter of a percentage point for the third straight day.
Mr. Powell, who expects the tariffs to lead only to a short-term price increase rather than permanently higher inflation, added that he expects the impact on everyday goods to peak in the first quarter of 2026.
In November, prices for furniture and bedding rose 3 percent for the year, although price increases for other goods still appeared to be somewhat muted. Prices for household appliances rose by 0.5 percent over the course of the year. Clothing prices rose by 0.2 percent.
Energy prices have risen by 4.2 percent in the last 12 months. The fastest-growing subgroup of these is heating oil, up 11.2 percent, while gasoline – the most important element in consumer psychology – only increased by 0.9 percent over the year.
Another category driving up inflation is used cars and trucks, which have become more expensive over the past year after falling from their peaks during the pandemic. These prices increased by 3.6 percent over the year. New cars haven't risen as much as automakers have tried to absorb the tariffs rather than pass them on to consumers.
Housing-related costs, which account for about a third of the total CPI index, rose 3 percent over the year. Many Fed policymakers expected further easing in this category this year, which would help lower overall inflation.
The Fed's recent interest rate decision was particularly controversial, in part because of an internal disagreement over how big inflation concerns should be. Six officials said they had some preference for keeping interest rates stable, including Austan D. Goolsbee, president of the Federal Reserve Bank of Chicago, and Jeffrey R. Schmid of the Kansas City Fed, who expressed official disagreements.
Beth Hammack, who will vote on interest rates next year as president of the Cleveland Fed, also expressed concern about price pressures and said last week that she would like to see interest rates “a little more restrictive” to curb inflation.
But increased inflation is not the central bank's only concern. The labor market has cooled significantly since the summer, fueling fears that it is at risk of a slump. The unemployment rate rose to 4.6 percent in November, according to BLS data released Tuesday. That's up from 4.4 percent in September, the last month officials had access to comprehensive data before the government shutdown.
Further evidence that the labor market is weakening is likely to prompt the Fed to cut interest rates again.
Christopher J. Waller, a Fed governor seen as a candidate to replace Mr. Powell when his term as chairman ends in May, said on Wednesday that the central bank still had room to cut interest rates because the labor market was “very weak.” However, he stressed that there is “no rush” for the Fed to do so.
According to forecasts released last week, most officials expected the unemployment rate to peak at 4.5 percent this year before falling slightly in 2026 as growth picks up and inflation eases. Against this backdrop, seven of the Fed's 19 policymakers planned to make no rate cuts at all next year, while eight wanted at least two rate cuts.
—Tony Romm contributed reporting.