The November inflation report released by the government showed consumer prices rising by 2.7% year-over-year, with core inflation decreasing to 2.6%, the lowest figure seen in years. However, economists raised concerns about the accuracy of these figures, particularly regarding housing costs, which are a significant component of inflation calculations.
Diane Swonk, chief economist at KPMG, called the report’s numbers “wacky.” She noted that shelter costs remained effectively unchanged from October to November, suggesting a misrepresentation of actual market conditions. Economists attributed the report’s anomalies to disruptions from an extended government shutdown, which hindered the Bureau of Labor Statistics’ ability to collect comprehensive price data during October. Consequently, when data collection resumed, the agency made statistical assumptions that treated many price categories as if inflation had stalled entirely.
Housing costs, constituting over 40% of the core Consumer Price Index (CPI), were particularly affected, indicating virtually no change in rents during October. Swonk warned that such assumptions could distort the index’s reliability moving forward. Other discrepancies in the report included unexpected increases in gasoline prices and a sudden drop in daycare costs, further complicating the assessment of inflation trends.
Joseph Brusuelas, chief economist at RSM, advised caution regarding the November CPI, labeling it as flawed and lacking in the detail typically provided by the Bureau of Labor Statistics. He stressed that the uncertainties surrounding recent price movements make it difficult to draw meaningful conclusions, especially for Federal Reserve policy.
Despite the seemingly positive inflation data, market reactions were muted, suggesting skepticism towards the report’s credibility. Analysts pointed out that while the data might support recent interest rate cuts, its questionable accuracy warrants a more cautious approach from policymakers.
Why this story matters:
- Misleading inflation data can influence economic policy and market decisions.
Key takeaway:
- The November CPI report is regarded as unreliable due to significant data collection issues.
Opposing viewpoint:
- Some see the report as supporting ongoing economic recovery, suggesting potential laxness in monetary policy.
