Why is the December CPI data expected to be muddy?
Data collection disruptions from the government shutdown and the timing of holiday sales are expected to impact the report.
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Economy / Inflation
December CPI Inflation Impacted by Government Shutdown and Holiday Sales
The December Consumer Price Index (CPI) is expected to show the impact of data collection disruptions from the government shutdown and holiday discounting. Economists are warning that these disruptions could lead to a downward bias in infla...
Key Insights
- Economists predict that the December CPI will be impacted by the 43-day government shutdown, which caused data collection lags.
- The carry-forward methodology used by the BLS during the shutdown may have imparted a downward bias on inflation dynamics.
- Holiday sales in late November could also contribute to a downward bias in the November CPI data.
- The Trump administration is focused on lowering prices for everyday goods, adding urgency to the political climate in an election year.
- A Justice Department criminal investigation of the Federal Reserve has raised concerns about the independence of the central bank. Why does this matter? These factors create uncertainty in interpreting inflation data, affecting policy decisions and consumer understanding of the economy.
In-Depth Analysis
The December CPI report is expected to reflect the effects of a government shutdown and holiday sales. The shutdown led to data collection lags, particularly affecting housing price data. The BLS used a carry-forward methodology, assuming no price changes during the shutdown, which may have biased inflation downwards. Additionally, November CPI data was collected during Black Friday sales, potentially skewing the results.
UBS analysts anticipate the December reading to show the strongest monthly increase since January 2025, with core inflation projected to rise 0.44%. They also expect a sharp rise in food prices. JPMorgan analysts believe the December report will correct some of the biases from the September-to-November period, resulting in a firm month-on-month increase.
These distortions are expected to cloud the signal from the December CPI, making it harder to assess the true state of inflation. The effects are projected to last through April 2026.
FAQ
How did the government shutdown affect data collection?
The BLS used a carry-forward methodology, assuming no price changes, which may have biased inflation downwards.
What impact did holiday sales have on the CPI data?
Data collected during Black Friday sales may have introduced a downward bias due to holiday discounting.
Takeaways
- The December CPI report may not accurately reflect true inflation due to data distortions.
- Be cautious when interpreting inflation data through April 2026, as it may be subject to downward bias.
- Keep an eye on food prices, which are expected to rise sharply.
- Understand that political pressures and investigations may influence economic policy.
Discussion
Do you think these data distortions will significantly impact economic policy? Share this article with others who need to stay ahead of this trend!
Sources
Disclaimer
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