The U.S. Bureau of Labor Statistics (BLS) released its long awaited inflation data for November, showing that consumer prices rose more slowly than expected. At face value, the Consumer Price Index (CPI) which is the government’s key inflation measure increased 2.7% YOY, down from about 3.0% in September and below forecasts that had centered near 3.1%. However, many economists are now warning that these figures may not reflect the true state of inflation and that they should be interpreted cautiously.
So why is this report unusual? The November CPI release was delayed and disrupted by a historic 43 day federal government shutdown that shut down the Labor Department’s (BLS) data collection machinery. Because field workers were furloughed, the BLS was unable to collect much of its routine price data in October. As a result, the October CPI report was entirely canceled which is the first such omission in decades. November price data was gathered only after the shutdown ended, limiting the period surveyed to the second half of the month. This break in the normal reporting calendar has economists worried that the numbers are noisy or downwardbiased and not comparable to typical CPI releases.
I have been reading that several experts have publicly questioned the statistical soundness of the November data. The methods used to fill gaps including assumptions around missing price changes could have artificially suppressed inflation readings, especially in core areas such as housing, which accounts for a significant portion of the CPI. Incomplete data for key categories like shelter costs, arguably distorting overall inflation trends. I think many regular folks know how the 'real' economy is goign which is leaving economists uneasy about drawing strong conclusions from it.
Despite these concerns, some policymakers and market participants responded positively. No surprise, the White House economic adviser Kevin Hassett publicly praised the lower inflation figures, framing them as evidence of economic progress and arguing they could justify future interest rate cuts. Financial markets also reacted, with stocks rising and bond yields falling on optimism that inflation might be cooling. I for one don't trust most things coming out of the governement these days so I'm waiting for the shoe to drop and market makers pull the rug from underneath our feet.