The delayed November consumer price index arrived Thursday with a message investors wanted to hear: inflation is cooling faster than expected. The headline CPI rose 2.7% year-over-year, below the 3.1% economists had forecast, while core inflation—excluding food and energy—came in at 2.6%, the lowest reading since March 2021.

Markets rallied on the news, with the Nasdaq jumping 1.5% and the S&P 500 gaining about 1% in early trading.

The Numbers

The Bureau of Labor Statistics reported that consumer prices rose at a 2.7% annualized pace in November, a notable deceleration from recent months. The core rate of 2.6% suggests that underlying inflation pressures—the kind the Fed watches most closely—are finally easing.

Breaking down the components:

  • Shelter costs: Up 3.0% year-over-year, showing progress toward the Fed's 2% target
  • Food prices: Up 2.6%, with groceries rising just 1.9%
  • Energy: Up 4.2%, reflecting oil price volatility
  • Eggs: Down 13.2% year-over-year (finally some relief)

The Shutdown Caveat

There's an important asterisk on this report. The 43-day government shutdown prevented data collection in October, meaning no month-over-month comparisons were possible. The BLS couldn't retroactively collect the missing data, so analysts are treating November's reading with appropriate caution.

"Wall Street analysts cautioned that the November inflation figures may be distorted by the government shutdown," noted several strategists. The December CPI report will offer a clearer picture of whether this is a genuine trend or a statistical anomaly.

Fed Implications

The cooler inflation reading strengthens the case for continued Federal Reserve rate cuts in 2026. "The Fed said it was in 'wait-and-see' mode, and today it got to see inflation moving in the right direction," said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.

Markets now see a wider opening for additional rate cuts, potentially as early as the first half of 2026. The combination of easing inflation and a softening labor market gives the Fed room to continue normalizing policy without risking a resurgence in prices.

Bond Market Reaction

Treasury yields fell on the report, with the 10-year yield easing to about 4.13%. The dollar index slipped to around 98.25 as traders priced in a more dovish Fed trajectory.

The Bottom Line

November's CPI report is the best inflation news the Fed has received in months. While the shutdown-related data gaps warrant caution, the direction is unmistakably positive. If December's report confirms the trend, expect the "higher for longer" narrative to give way to renewed rate-cut optimism. For now, investors are taking the win.