Inflation just handed investors a pleasant surprise. U.S. price pressures cooled more than expected in November, reinforcing confidence that the Federal Reserve can keep easing monetary policy well into 2026.

The Consumer Price Index climbed 2.7% year-over-year in November, the Bureau of Labor Statistics reported Thursday. That's a meaningful drop from September's 3% reading and comfortably below the 3.1% economists had penciled in.

Core inflation delivered an even better surprise. Stripping out volatile food and energy prices, core CPI increased just 2.6% year-over-year. That undercut the 3% forecast and marked the lowest rate since March 2021.

Services inflation is finally showing some relief. Prices excluding energy services rose 3% year-over-year, down from the previous reading. Shelter costs, which account for nearly one-third of the entire CPI basket, increased 3% and continue edging lower.

One quirk worth noting: The report didn't include month-over-month changes for headline or core CPI. The October inflation release was scrapped due to the government shutdown, and the Bureau of Labor Statistics couldn't collect the necessary data retroactively.

Ahead of the release, bond markets were pricing in a modest probability of a 25-basis-point rate cut at the Federal Reserve's January 28 meeting.