(Yahoo!Finance) - How much is inflation really cooling?
Thursday’s release of November’s Consumer Price Index (CPI) data showed inflation unexpectedly eased to an annual rise of 2.7% that month.
Monthly comparisons — October data was never collected due to the government shutdown — were absent from the Labor Department’s report, leaving more recent price swings a bit of a mystery for dozens of product categories.
Economists treaded lightly following the report.
Heather Long, chief economist at the Navy Federal Credit Union, said in an email that Thursday’s report was “the data nerd equivalent of the ‘emperor has no clothes’ story.”
“It’s hard to take this data seriously. There was no data collection in October and limited collection in November,” Long said. “A key reason inflation cooled unexpectedly is a big easing in rent costs. That doesn’t match up with private sector data, and it doesn’t pass the 'sniff test' of reasonability.”
Indeed, the cost of housing was one of the categories that was immediately debated following the report’s release. Shelter costs comprise about a third of the index, and the Labor Department said that shelter rose 0.2% between September and November. The overall index rose 3% on an annual basis.
“It appears that BLS made a big judgment error in its shelter calculation (effectively assuming 0 in October), leading to inflation understated,” Harvard economist Jason Furman said in a post on X. “It is, however, very unlikely this error was political. If anything the opposite: they stuck to algorithm rather than using judgment.”
Inflation would still be cooler without the shelter data, Furman noted, just not by as much.
“Hopefully @BLS_gov will clarify this,” Jed Kolko, senior fellow at the Peterson Institute for International Economics, said in an X post responding to Furman’s take. “Lots of confusion in expert text chats this morning.”
Long, the Navy Federal Credit Union economist, said one “big driver” of the lower headline inflation number appeared to be “real”: gas prices, which have continued a steady descent below an average of $3 nationally, reaching their lowest levels in over four years.
Meanwhile, Sam Tombs, chief US economist at Pantheon Macroeconomics, pointed out another wrinkle: “A higher proportion of price quotes than usual for November likely were sourced during the Black Friday discount period,” he said in a note to clients.
“November’s CPI data have to be treated cautiously, given that CPI data collection resumed only on the 14th after the end of the shutdown,” Tombs said.
But for now, economists say December’s data will offer a better picture. That’s currently scheduled to be released on Jan. 13, as the government’s data collection starts to revert to a normal schedule in the wake of the shutdown. That will give the Federal Reserve a clearer picture before its next interest rate decision later next month.
“The key takeaway is we need to wait and see what December and January data show,” Long said. “Inflation probably didn’t ease in November, but it seems likely it isn’t getting worse. That gives the Fed time to pause and assess.”
