A surprise slowdown in the U.S. consumer price index (CPI) for November has raised suspicions in the market, as some figures showed unusually sharp declines. Although the data fuels expectations for a rate cut, its reliability is questioned, indicating the need to confirm December’s figures for a clearer assessment.
On December 18 (local time), Omar Sharif, founder of Inflation Insights, commented on the November CPI report by the U.S. Bureau of Labor Statistics (BLS), stating that an “unacceptable occurrence” had taken place. He suggested the BLS might have assumed a ‘0’ for October’s rent and owner’s equivalent rent.
Sharif explained that in order for the two-month average increase rates for rent and owner’s equivalent rent to be 0.06% and 0.135% respectively, the October figures must have been assumed as ‘0’. He stressed that assuming such figures would be irrational, yet this appeared to be the reality. He added that unless the BLS makes separate adjustments, this could artificially lower the year-over-year inflation rate until April of next year.
Housing costs, which play the largest role in the service sector, have been a key factor in U.S. inflation dynamics over recent years. The November CPI ostensibly rose only 0.2% when seasonally adjusted, falling short of market expectations, and showing a significant decline in housing cost increases, prompting concerns about data reliability.
Paul Ashworth, North America chief economist at Capital Economics, also expressed concerns, stating that a sudden halt in rising trends in persistently strong service sectors like housing rents is quite unusual outside of a recession, and that the next month’s December figures need to be awaited to clarify whether this represents a statistical anomaly or genuine disinflation.
Ernie Tedeschi, a chief economist at Stripe, echoed scenarios of sharp declines, noting that the recent three-month annualized increase rate of housing costs was 1.6%, significantly lower than 3.8% three months prior, advocating for further data confirmations.
Amid extended shutdowns of federal operations from October to mid-November, the data reflecting November CPI, as gathered mostly during the peak discount season post-Black Friday, could have also been skewed. Sharif suggested that substantial discounts could have resulted in significantly weaker core goods prices, excluding vehicles, with potential rebounds in December figures.
Typically, BLS accumulates data for the CPI report throughout the month, but due to shutdown impacts, it’s known that data collection started only post-November 12. Jerome Powell, Chair of the Federal Reserve (Fed), also noted the potential for distorted CPI figures during the Federal Open Market Committee (FOMC) press conference on December 10.
As continuous concerns regarding the CPI arise, there’s uncertainty about how this report might influence the varying perspectives on next year’s rate path within the Fed. In response to concerns over labor market deterioration rather than inflation, the Fed has cut rates three times consecutively through September, October, and this month.
On the same day, the BLS announced that November’s CPI increased by 2.7% compared to the same period last year, falling below Dow Jones’ experts’ forecast of 3.1%, and lower than September’s rate of 3.0%. Core CPI, excluding the highly volatile energy and food sectors, rose only 2.6% year-over-year, lower than September’s 3.0% rate.
The announcement of the November CPI was delayed by about a week from the originally scheduled date due to shutdown delays. The BLS indicated that October’s CPI couldn’t be separately compiled due to budget stop, and that some non-survey data partially filled in the gaps in the usual CPI report data.