Underlying U.S. inflation rose in November at the slowest annual pace since early 2021, an unexpected improvement in a report muddled by the government shutdown.

The core consumer price index, which excludes the often-volatile food and energy categories, increased 2.6% in November from a year ago, according to Bureau of Labor Statistics data out Thursday. The overall CPI climbed 2.7% in November from a year ago.

The longest-ever government shutdown prevented the BLS from collecting much of the October price data. That not only limited the agency’s ability to determine month-over-month changes for the broader measures of inflation, but some economists noted it likely impacted the annual November figures as well.

Despite numerous caveats, the report offers some hope that inflationary pressures are easing after remaining stuck in a narrow range since early this year. The BLS said the core CPI rose just 0.2% over the two months ended in November, restrained by declines in costs of hotel stays, recreation and apparel. Prices of household furnishings and personal care products rose.

However, several economists noted that the two-month change in key shelter categories, which are some of the biggest components of the CPI, was basically flat — calling the calculations into question.

“It’s possible that this does reflect a genuine drop off in inflationary pressures, but such a sudden stop, particularly in the more-persistent services components like rent of shelter is very unusual, at least outside of a recession,” Paul Ashworth, chief North America economist at Capital Economics, said in a note.

“The upshot is that is looks like we all have to wait until the December data is published next month to verify whether this is a statistical blip or a genuine disinflation,” he said.

BLS didn’t immediately respond to a request for comment.

It’s not clear whether the CPI report will sway Federal Reserve policymakers, who remain divided on the course of interest rates next year. Last week, the Fed cut rates for a third straight meeting to guard against a more concerning deterioration in the labor market.

The S&P 500 opened higher, while Treasury yields remained lower and the dollar fell after the report. Investors expect the Fed to cut rates at least twice next year.

Speaking after the decision, Chair Jerome Powell said the CPI data “may be distorted” because of the record-long government shutdown that ended on Nov. 12.

BLS said data collection began two days after that, whereas it would typically sample prices throughout the month. However, the agency authorized additional collection hours to try to gather more data. Some economists noted the delay may have skewed the figures, given discounts around Black Friday.

“The slowdown was broad-based across nearly all categories, adding to our suspicions that the shutdown’s disruptions caused issues in the data,” Wells Fargo & Co. economists said in a note. “Data collection didn’t begin until the second half of November, which may have skewed the sample more than we anticipated.”

Goods prices, excluding food and energy commodities, rose 1.4% on an annual basis. That compares with 1.5% increases in August and September.

Using data collected from third-party sources, the BLS was able to report monthly prices changes for some select categories, including new and used vehicles and gasoline.

New-car prices rose 0.2% after edging up 0.1% a month earlier, while used-car price growth decelerated. Powell said that he expects inflation from goods to peak in the first quarter, assuming no new major tariff announcements.

Shelter costs

Services prices excluding energy climbed 3% on an annual basis. Airfares and hotel stays declined from a year ago. Another services gauge closely tracked by the Fed, which strips out housing and energy costs, rose 2.7% from November 2024 — matching the smallest annual advance since 2021.

One of the key drivers of inflation in recent years has been housing costs — the largest category within services. Shelter prices increased 3% from a year ago, the smallest advance in more than four years.

CPI largely relies on in-person visits to retail stores and service establishments across the country to gather prices for thousands of items. That accounts for about 60% of the sample, while other prices are collected over the phone, online and through third-party sources. The BLS said the number of indexes that are composed of non-survey data is “very limited.”

Consumer spending is the main engine of the economy, and a separate report Thursday that combines the inflation figures with recent wage data showed that real average hourly earnings climbed 0.8% from the year before.

Other figures showed applications for U.S. unemployment benefits fell after a spike in the previous week, underscoring the choppy nature of the data at this time of year.

(With assistance from Reade Pickert and Julia Fanzeres.)

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