Economists Skeptical of November CPI Data Due to Methodological Concerns

Skepticism Over November CPI Data

• 📈 Economists and the bond market are expressing skepticism regarding the recent cooler-than-expected inflation data.
• ⚠️ Concerns are not political but methodological, suggesting changes in data gathering and analysis may have distorted the Consumer Price Index (CPI) numbers.

Data Collection and Methodology Issues

• 🧐 Economists from RSM and Oxford have noted flawed reports and methodological issues, with Pantheon suggesting trends will only be clear in December.
• 🏠 Specific questions have been raised about the sharp drop in housing costs and the potential overemphasis on holiday discounts due to data collection timing.
• 📊 Morgan Stanley noted the possibility that the Bureau of Labor Statistics (BLS) may have carried forward prices, assuming zero inflation in some categories, which could lead to a December reacceleration.

Market Reaction and Federal Reserve Implications

• 📉 The bond market showed skepticism, as indicated by the 2-year yield rising after the CPI announcement, suggesting they weren't convinced the Fed would ease policy sooner.
• 🏦 Federal Reserve rate cut probabilities for January, March, and April remained largely unchanged, indicating the market did not significantly alter its expectations based on the November CPI report.

Credibility of Inflation Declines

• 💡 While inflation, particularly in housing, is likely declining, the speed and magnitude of the reported drop in the CPI are considered too much, too fast to be credible.
• 🗣️ The issues discussed are methodological, related to how the numbers were compiled, including the use of 'fill-ins' and the focus on data from only the second half of the month, rather than fabricated data.