November Inflation: Low but messy

December 18, 2025

Stocks are jumping after a weaker-than-expected inflation report.  And if inflation is no longer a concern, the Fed can lower rates back down to more agreeable levels.  And on Wall Street, this is cause for much rejoicing.  

Currently the S&P 500 is +1.1%.  The tech-heavy Nasdaq 100 is +1.9%.  Our AI basket is up +2.7%

November Inflation

November inflation was much lower than expected (2.6% vs 3.0% Wall Street estimate).  It was the biggest surprise relative to expectations in almost 20 years.  So that’s good.  Interest rates are falling, and stocks are jumping.  The bad news is that the data might be… well... wrong.

What now? Well, the data nerds are in heated debate about what effect the shutdown had on the quality of the data.  As you probably remember, the federal government was shut down in October and half of November.  So, the army of price checkers at the BLS were furloughed and unable to collect their usual massive database of monthly prices.  We’ll never get the October figures.  And November is a little warped, because they didn’t start collecting again until late in the month.  But it’s all we’ve got for now.

There’s no practical way to revise the data.  So unfortunately, we’ll just have to wait a few months (and get the shutdown further behind us) to get a better sense for actual inflation trend.

But the market doesn’t seem to mind!   The market’s estimate of 5-yr forward inflation is down big today to 2.33%.

That’s within striking distance of the Fed’s goal of 2.00%.  And if the Fed can finally declare victory over inflation, then there’s a clear runway to lower interest rates further in the first half of next year.  And as well all know, the market loves rate cuts.  This is the market’s implied forward estimate of 5yr inflation.  We’re at the bottom of the range since covid.  Will we finally break through?