Superficially (and perhaps even actually) today’s inflation data was encouraging. The CPI was up 2.7 percent (year-on-year) for November, and “core” inflation (excluding food and energy) came in at 2.6 percent. These numbers (conditions and exceptions apply) showed some slackening of the inflation rate after some disappointing months. The headline numbers came in below expectations of around 3 percent.
But . . . the government shutdown disrupted the flow of numbers. To quote Axios, “the release looks astonishingly incomplete — with blank columns across a slew of categories, including groceries, shelter, apparel and more.”
But still, “a key category of consumer items, watched closely for signs of tariff-related price increases, barely budged over the two months.”
On the other hand, the Financial Times quotes Michael Hanson, a senior economist at JPMorgan:
[T]he lower than expected figures “suggest that the BLS may have held fixed a number of prices it was not able to collect in October, which likely means a material downward bias in the current numbers that will be reversed in coming months as full price collection resumes”.
Economists said the headline figures were likely skewed lower by quirks in how the report was compiled, with several noting that officials did not begin gathering prices until the second half of November — a period that may have captured Thanksgiving discounts without fully reflecting higher prices earlier in the month, when promotions are typically scarcer.
More significantly, a third of the inflation index looks lower than it otherwise would because the government’s data appears to show no increase at all in rent and homeowners’ housing costs for October [which have been a significant contributor to inflation].
Inflation in those categories did not stop rising, but the zeroed out data appears to be a technical quirk in how the data was collected and reported, according to Omair Sharif, who leads forecasting firm Inflation Insights.
Another known unknown is the extent to which businesses are “eating” tariff costs and/or still working through pre-tariff inventories before deciding what tariff-related costs they are going to pass on.
Meanwhile, via the Wall Street Journal:
“I think you largely just put this one to the side,” said Alan Detmeister, an economist at investment bank UBS. “Maybe this report gives a minor downward sign for overall inflation, but the vast, vast majority of this is just noise and should be ignored.”
That’s fair, although as a perennial pessimist I note that last week the National Federation of Independent Business reported that:
The net percent of [business] owners raising average selling prices rose 13 points from October to a net 34% (seasonally adjusted), the highest reading since March 2023 and the largest monthly jump in the survey’s history. Price increases remain well above the monthly average of a net 13%, suggesting continued inflationary pressure.