December CPI Inflation Affected by Government Shutdown Data Gaps
‘The Big Money Show’ panel discusses whether small businesses are being squeezed by inflation, high borrowing costs, and corporate dominance as Wall Street profits soar and bankruptcies on Main Street hit record highs.
The Labor Department is set to release the December consumer price index (CPI) on Tuesday. Analysts expect the report to indicate inflation remaining elevated, surpassing the Federal Reserve’s 2% target, largely due to data collection disruptions stemming from the recent government shutdown.
According to a consensus forecast compiled by FactSet, headline inflation is projected to have risen by 0.3% on a monthly basis in December, with a year-over-year increase of 2.6%. Core inflation, which excludes the more volatile food and energy prices, is expected to rise by 0.26% for the month and 2.6% compared to the previous year.
Economists are cautioning that the 43-day government shutdown, which concluded in mid-November, will have repercussions not only for the December CPI report but also for CPI inflation data in the months to follow.
Greg Daco, chief economist at EY-Parthenon, remarked in an interview with FOX Business, “This is going to be an extremely muddy report because of the lingering questions around the October and November CPI report. Most of the data was affected by the government shutdown.”
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The December CPI report is expected to have a downward bias due to data collection lags from the shutdown, economists warn. (Spencer Platt/Getty Images / Getty Images)
Daco’s firm anticipates that both headline and core CPI will rise by 0.3% on a monthly basis and 2.7% year-over-year in December, with slight upward pressure on energy and government shutdown, those surveys were not conducted,” he explained.
“The BLS decided to essentially use what is called a carry-forward methodology, which assumes that prices did not change over the course of any given month,” Daco elaborated. “Prices always change, but that was the approximation used, which imparted a downward bias on inflation dynamics.”
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Daco pointed out that the housing price data, particularly from rent and owners’ equivalent rent, is where the carry-forward methodology’s bias is most problematic. This is because it suggested no change in housing gauges between April and October, as the BLS measures it on a six-month rolling basis.
Moreover, the November CPI data was collected in the latter half of the month, coinciding with a period of increased discounting during key Black Friday events, which may have further contributed to a downward bias in the November data itself.
According to Daco, the data collection issues for the October and November CPI will “represent a downward bias on inflation through April.”
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The data disruption from the shutdown is expected to impact inflation readings through April. ( Stephanie Keith/Bloomberg via Getty Images / Getty Images)
Daco also mentioned that while there will be some offset to the downward bias in inflation data through April, it won’t happen all at once. “It’s very hard to say how quickly we’re going to see an offset from the downward bias implied by the late survey and the carry-forward methodology,” he cautioned.
Oxford Economics forecasts that headline and core CPI will rise by approximately 0.3% on a monthly basis in December. They warned that “shutdown-related distortions will continue to cloud the signal from the December CPI.” The firm noted that the November CPI data for apparel and recreation goods was particularly weak due to the timing of data collection during the holiday discounting season, and that the year-over-year CPI reading will remain depressed due to housing.
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According to Oxford Economics, “The BLS will continue to print an artificially low level of the CPI for shelter in December, and this downward bias won’t be corrected until April 2026.”
‘The Big Money Show’ panel discusses whether small businesses are being squeezed by inflation, high borrowing costs, and corporate dominance as Wall Street profits soar and bankruptcies on Main Street hit record highs.
The Labor Department is set to release the December consumer price index (CPI) on Tuesday. Analysts expect the report to indicate inflation remaining elevated, surpassing the Federal Reserve’s 2% target, largely due to data collection disruptions stemming from the recent government shutdown.
According to a consensus forecast compiled by FactSet, headline inflation is projected to have risen by 0.3% on a monthly basis in December, with a year-over-year increase of 2.6%. Core inflation, which excludes the more volatile food and energy prices, is expected to rise by 0.26% for the month and 2.6% compared to the previous year.
Economists are cautioning that the 43-day government shutdown, which concluded in mid-November, will have repercussions not only for the December CPI report but also for CPI inflation data in the months to follow.
Greg Daco, chief economist at EY-Parthenon, remarked in an interview with FOX Business, “This is going to be an extremely muddy report because of the lingering questions around the October and November CPI report. Most of the data was affected by the government shutdown.”
FURTHER RATE CUTS IN QUESTION AS FED POLICYMAKERS DEEPLY DIVIDED OVER DECEMBER CUT, MINUTES SHOW
The December CPI report is expected to have a downward bias due to data collection lags from the shutdown, economists warn. (Spencer Platt/Getty Images / Getty Images)
Daco’s firm anticipates that both headline and core CPI will rise by 0.3% on a monthly basis and 2.7% year-over-year in December, with slight upward pressure on energy and government shutdown, those surveys were not conducted,” he explained.
“The BLS decided to essentially use what is called a carry-forward methodology, which assumes that prices did not change over the course of any given month,” Daco elaborated. “Prices always change, but that was the approximation used, which imparted a downward bias on inflation dynamics.”
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Daco pointed out that the housing price data, particularly from rent and owners’ equivalent rent, is where the carry-forward methodology’s bias is most problematic. This is because it suggested no change in housing gauges between April and October, as the BLS measures it on a six-month rolling basis.
Moreover, the November CPI data was collected in the latter half of the month, coinciding with a period of increased discounting during key Black Friday events, which may have further contributed to a downward bias in the November data itself.
According to Daco, the data collection issues for the October and November CPI will “represent a downward bias on inflation through April.”
US ECONOMY ADDED 50K JOBS IN DECEMBER AS UNEMPLOYMENT RATE DECLINES
The data disruption from the shutdown is expected to impact inflation readings through April. ( Stephanie Keith/Bloomberg via Getty Images / Getty Images)
Daco also mentioned that while there will be some offset to the downward bias in inflation data through April, it won’t happen all at once. “It’s very hard to say how quickly we’re going to see an offset from the downward bias implied by the late survey and the carry-forward methodology,” he cautioned.
Oxford Economics forecasts that headline and core CPI will rise by approximately 0.3% on a monthly basis in December. They warned that “shutdown-related distortions will continue to cloud the signal from the December CPI.” The firm noted that the November CPI data for apparel and recreation goods was particularly weak due to the timing of data collection during the holiday discounting season, and that the year-over-year CPI reading will remain depressed due to housing.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
According to Oxford Economics, “The BLS will continue to print an artificially low level of the CPI for shelter in December, and this downward bias won’t be corrected until April 2026.”
