Intelligent Investment
Economic Watch: Slight Rise in November Inflation Not Expected to Derail Fed Rate Cut
December 11, 2024 3 Minute Read
Executive Summary
- The Consumer Price Index (CPI) rose by 2.7% year-over-year in November as expected, up from 2.6% in October.
- Annual core inflation, which excludes food and energy prices, was unchanged at 3.3%, also meeting expectations.
- There were notable year-over-year increases in transportation (7.1%) and food (2.4%), while energy prices declined by 3.2%.
- Although CBRE expects the Fed will reduce the federal funds rate by 25 basis points next week, the central bank likely will slow the pace of its rate cuts in 2025.
- Lower short-term interest rates should support commercial real estate investment activity in coming quarters. However, a 10-year Treasury yield above 4% will moderate the pace of recovery.
The Bottom Line
Core CPI, which excludes food and energy prices, remained elevated at 3.3% year-over-year in November. Sizable annual increases included motor vehicle insurance (14.0%) and medical care (3.8%). The CPI’s shelter component, which accounts for nearly 40% of the index’s total value, had the smallest annual increase of 4.7% since February 2022—a positive sign for inflation.
Despite persistent service sector inflation, we expect price increases will fall toward the Fed’s 2% target in 2025 as productivity gains and a slightly softer job market lower growth in unit-labor costs. However, any potential tariffs on imported goods for a prolonged period could stoke inflation.
As the Fed continues its rate-cutting cycle, we expect investment activity to accelerate in 2025.
Figure 1: CBRE House View
