Ex-Oil, Inflation Is 'Healthy' Enough For Fed Rate Hike

November Inflation Rates Leave Room and Reason for a Rate Hike

Whether or not the U.S. saw any inflation last month is largely a matter of perspective. On a core basis (not counting food and energy) we did. When the plummeting price of gasoline is factored in though - despite lingering high prices in grocery stores - consumers weren't impacted by rising prices at all last month. Still, there's enough inflation on most fronts that the Federal Reserve has room and reason to go ahead and push the Fed funds rate up a quarter of a point when it has to make a decision by tomorrow.

Overall, consumer prices were flat on November, and up 0.2% when not counting gas and food prices. On annualized basis, the overall inflation "rate" now stands at 0.5%. Without cheap oil weighing gas prices down, however, the annualized inflation rate would have been the Fed's targeted 2.0% as of last month. That's the highest inflation reading since May of 2014, and the Federal Reserve will almost certainly want to put a lid on it before it's allowed to race out of control.

Consumer Prices & CPI Chart

Critics of the idea of a rate hike imposed at this time cite a fragile economy as something not to be impeded, and hold up the lack of overall inflation as reason to wait. Waiting, however, is a mistake the Fed doesn't want to repeat... nor should. With the U.S. dollar now struggling to move higher at the same time the full demise of oil is nearing a one-year anniversary, from here, the year-over-year inflation comparisons should start to normalize and feel like normal inflationary pressures. This includes at the gas pump.

As of the latest look, the odds that the Fed Funds rate will be at 0.5% after tomorrow are 81%, versus only a 19% chance it will remain at 0.25%.