Soft November CPI tempers inflation but shutdown‑hit data keeps a rebound in play
November’s “too good to be true” US inflation print is already on probation with economists – and that matters more than the headline numbers for anyone positioning around rates and risk assets.
According to CNBC, the Bureau of Labor Statistics said US CPI rose 2.7 percent year over year in November, below the 3.1 percent consensus, while core CPI came in at 2.6 percent versus 3 percent.
Monthly gains for both headline and core CPI were 0.2 percent instead of the expected 0.3 percent.
That softer profile briefly lifted equities and pushed Treasury yields lower, and traders bumped up the odds of a March rate cut, as per CNBC’s summary of CME FedWatch data.
The catch is how the data came together.
The 43‑day US government shutdown forced the BLS to cancel the October CPI report and start November’s data collection late, then rely on “nonsurvey data sources” to fill gaps, according to CNN.
Because October figures were missing, the agency could not calculate normal month‑over‑month changes for most categories and had to make methodological assumptions.
Those assumptions are exactly what’s making economists nervous.
Michael Gapen at Morgan Stanley said the downside surprise likely reflects “methodological issues,” noting the BLS might have carried forward prices in some areas and “effectively assum[ed] 0 percent inflation,” according to CNBC.
He called the report “noisy” and warned that inflation could “reaccelerate in December” if technical factors drove much of the weakness.
Housing is the biggest red flag. Owners’ equivalent rent, a critical and heavily weighted housing component, appears to have been treated unusually.
UBS economist Alan Detmeister said October OER changes looked “set to zero,” while Evercore ISI’s Krishna Guha said the BLS seemed to “put in zero inflation in multiple categories” for about one‑third of cities.
That would bias US housing inflation lower on paper, even if underlying pressures remain sticky.
Detmeister expects this weakness to unwind with “very large OER and tenants’ rents increases” in the April CPI release, but until then sees OER and tenants’ rent “biased downward.”
Stephanie Roth at Wolfe Research estimated the combined two‑month increases in rent and OER imply only about 0.06 percent and 0.13 percent monthly gains – unusually soft for such key components, also reported by CNBC.
Joe Brusuelas at RSM US told CNN that rent and OER changes were “in the vicinity of zero” and said the numbers “don’t pass the smell test,” calling it “one flawed report” given the shutdown constraints.
At the same time, the mix of inflation still matters for the Fed’s reaction function.
On a 12‑month basis, food prices rose 2.6 percent, energy 4.2 percent and shelter 3 percent, showing some progress toward the Fed’s 2 percent goal given shelter’s heavy weight, according to CNBC.
CNN noted that, over the two months from September to November, overall prices rose 0.2 percent (about 0.1 percent per month) versus a 0.3 percent monthly rise in September, while core inflation also cooled on this two‑month view.
For policy and markets, the key takeaway is not “inflation is fixed,” but “this print is hard to trust.”
Wells Fargo economists said US CPI data are not revised and will likely be “noisy for at least another month or two,” adding that a “bounce back in prices” in the December report “is probably coming.”
Roth at Wolfe Research wrote that while markets are reading the report as dovish, she expects the Fed to “put less weight on this reading” and sees a likely bounce as the data normalize after shutdown‑related volatility, as reported by CNBC.
