On the surface, the November consumer price index (CPI) report was precisely what markets wanted, as inflation ticked up at a much lower than expected rate. However, some raised some issues with the collection of the data, which was significantly affected by the longest U.S. government shutdown in history.
Headline CPI in November came in at +2.7% Y/Y, lower than the +3.1% consensus. Core CPI, which excludes food and energy, came in at +2.6% Y/Y versus the estimate of +3.0%.
The delayed report was missing almost all October figures, as survey data had not been collected for that month due to the shutdown. Experts noted that the U.S. Bureau of Labor Statistics (BLS) essentially carried over September numbers to October and, in doing so, understated one of the biggest contributors to inflation: housing.
"Whacky CPI data. Good news is it cooled to a 2.7% gain from a year ago. However, data collection didn’t begin until Nov 14, while much of data for October was 'carried forward' at September levels. This was also true for imputation in November. That tends to zero out a change of up or down in any given data point within the series," Diane Swonk, chief economist at KPMG US, said on X.
"In September, 40% of the data was imputed. We do not yet have the imputed figures for November. Suffice it to say, we should take the data with a grain of salt," Swonk added.
Shelter accounts for a chunk of core consumer inflation. The BLS' calculation implies that rent and and owners’ equivalent rent in October was zero.
"It (appears) that BLS made a big judgment error in its shelter calculation (effectively assuming 0 in October), leading to inflation understated. It is, however, very unlikely this error was political. If anything the opposite: they stuck to algorithm rather than using judgment," Jason Furman, former deputy director of the U.S. National Economic Council, said on X.
"The issue is that for most prices, like eggs, they look at what they were in November (e.g., $3 in November) and compare to what they were in September. But for shelter they mostly use rent/Owner's Equivalent Rent which is based on a monthly growth rate not a level," Furman added.
Others noted that the rental market was already under pressure.
"Regardless of the rent/OER methodology issues in today’s CPI, we know from our trackers and surveys the rental market is struggling. Very weak decelerating new lease growth, which will help keep a lid on inflation well into 2026. Not the best demand story, but if inflation is the lens you care about, directionally, shelter disinflation is for sure happening," Rick Palacios Jr., director of research at John Burns Research & Consulting, said on X.
Despite the issues in the CPI report, Wall Street took heart from the data and ended higher on Thursday. Here are some exchange-traded funds that track the benchmark S&P 500 index (SP500): (SPY), (VOO), (IVV), (RSP), (SSO), (UPRO), (SH), (SDS), and (SPXU).
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