The US CPI is coming out tonight! Only a blowout will stop the rate cuts?

The last key data before the December Federal Reserve meeting is about to be released! How will tonight's CPI "influence" the interest rate cut path?

At 21:30 Beijing time tonight, the U.S. Bureau of Labor Statistics will release the November CPI data. Economists surveyed by Bloomberg generally expect the year-on-year CPI growth rate for November to slightly rise from 2.6% last month to 2.7%, with a month-on-month growth rate also slightly increasing to 0.3%; the core CPI, excluding food and energy prices, is expected to remain flat at 3.3% year-on-year for the fourth consecutive month, and the month-on-month rate is also expected to remain at 0.3%.

This will be the last important reference for the Federal Reserve before the FOMC meeting on December 18.

Currently, the market generally expects the Federal Reserve to cut interest rates by 25 basis points next week. The CME FedWatch tool shows that currently, traders are betting on an 86% probability of a rate cut by the Federal Reserve in December. Last Friday, several senior officials of the Federal Reserve released "dovish" signals, indicating a tendency to cautiously cut rates in the future.

Commodity inflation remains stable, service inflation slows, likely will not hinder the pace of rate cuts

Bank of America analysts Stephen Juneau and Jeseo Park expect the month-on-month growth rate of the core CPI inflation rate for November to slightly slow to 0.2%, with the overall CPI rising 0.2% month-on-month, remaining flat compared to last month, indicating overall weak performance.

The report states that a core reason for the slowdown in core inflation is expected to come from a significant decline in airfare prices, which are expected to end the upward trend of the previous three months, with a month-on-month growth rate turning to -1%, and the contribution to core inflation dropping from 3 basis points to -1 basis point.

By category, Bank of America expects little change in the core commodity inflation rate for November, with prices of other goods, except for used cars, expected to decline; due to the drop in airfare prices and moderate easing of housing inflation, core service inflation is expected to cool down.

The report states that inflation data must be stronger than expected (for example, CPI month-on-month growth exceeding 0.3%) to potentially lead the Federal Reserve to pause rate cuts this month. In the long term, the upward risk of inflation remains limited, long-term inflation expectations are stabilizing, and supply constraints in the labor market have largely eased.

Goldman Sachs analysts also believe that the November CPI data will show moderate performance, expecting both overall and core CPI to rise by 0.28% year-on-year. However, unlike Bank of America, Goldman Sachs believes that airfare prices will continue to rise and have a potential long-term upward trend, and that used cars and auto insurance may also contribute to pushing up inflation:

We expect used car prices to rise strongly by 2% in November, reflecting the ongoing trend of rising used car auction prices;

Although this is a significant cooling compared to last month's growth rate of 3.2%, airfare prices are still expected to rise by 1% year-on-year;

Car insurance prices are expected to rebound by 0.5%, reflecting the continued growth in premiums, primarily due to high car prices, repair costs, and medical litigation costs.

Looking ahead, Goldman Sachs expects the month-on-month growth rate of CPI to stabilize at around 0.2-0.25% in the coming months. The rebalancing of the automotive, housing rental, and labor markets will further suppress inflation, but the rising healthcare prices and potential tariff policy upgrades may have offsetting effects.

JPMorgan Chase also stated that tonight's CPI data may be the least "influential" data of the year. The bank believes that regardless of the CPI data trend, it will not affect the Federal Reserve's decision to cut interest rates by 25 basis points next week, and attention should be focused on the economic situation thereafter.

With the Federal Reserve having shifted its focus to the labor market, JPMorgan Chase believes that although the labor market is performing robustly, there are still significant downside risks, and a substantial change in CPI exceeding three standard deviations would be required for the Federal Reserve to change its policy stance.