This morning’s Consumer Price Index for November was mostly in line with expectations (although the headline reading was slightly higher than expected), and the lack of any meaningful surprises has allowed the market to continue with what has lately been the path of least resistance, which has been higher. The report also showed that the most rapid leg of disinflation is most likely behind us, and while that could lead some to believe that the road ahead will be a slog, that isn’t necessarily the case.

For starters, the focus of monthly inflation reports lately has been in Core CPI (ex-food and energy). After peaking at 6.6% in June 2022, the November year/year reading came in at 4.0% for the second month in a row.

The chart below shows the historical 12-month rate of change in the y/y core CPI. Over the last 12 months, that rate of increase has declined by two full percentage points, and outside of the prior two months, that is one of the sharpest declines since the early 1980s.In other words, the 12-month rate of change is still declining, but the pace of decline is slowing.

November’s streak also ended what has been a monumental streak of monthly declines in the y/y core CPI reading. At seven months in October, it was the second longest streak on record, trailing only the ten-month streak of declines ending in December 1975.

Understandably, the end of the streak of declines along with the slowing rate of decline in the y/y core CPI reading could lead one to think that inflation levels are plateauing at a higher level. However, a look at the trend of monthly prints in core CPI shows a potential tailwind in the months ahead. The chart below shows the monthly change in core CPI over the last 24 months. While it hasn’t exactly been linear, the trend is lower. In the twelve months from December 2021 through November 2022, eight out of twelve monthly prints were 0.5% or above, but in the last twelve months, only one print has been 0.5%.

Just looking at the last year (shaded area in chart) it’s a similar trend. From December 2022 through May 2022, every monthly print was 0.4% or above, but in the most recent six months, every print has been 0.3% or below. If just the trend of the last six months remains in place, for the next six months the y/y reading will be replacing monthly prints of 0.4% or more with prints of 0.3% or less which should help to keep the trend of disinflation going.

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