How much has inflation in the United States actually eased?
The U.S. Consumer Price Index (CPI) data released on Thursday, Eastern Time, presented a rather "ideal" picture: the U.S. November unadjusted CPI annual rate was 2.7%, significantly lower than the market expectation of 3.1%; the core CPI, excluding volatile food and energy prices, was also significantly lower than expected, rising 2.6% year-on-year, a new low since March 2021, compared with an expected value of 3%.
These lower-than-expected figures prompted traders to increase their bets on a Federal Reserve rate cut next year. Even Kevin Hassett, director of the White House National Economic Council, exclaimed, "This CPI report is shockingly good."
However, American economists are not so optimistic.
Economists warn that the report's usual omission of October data (which could not be collected due to the government shutdown) makes monthly comparisons impossible, making recent price fluctuations across many product categories somewhat difficult to interpret.
Some economists have even warned that such "perfect" data is like "the emperor's new clothes," and may simply be the US government deceiving itself.
The November data should be viewed with caution.
Following the release of the U.S. November CPI data, Heather Long, chief economist at Navy Federal Credit Union, said the report was "like the 'Emperor's Clothes' story to data experts."
“It’s hard to take these data seriously. There was no data collected in October, and the collection in November was also limited,” Lang said bluntly. “A key reason for the unexpected slowdown in inflation is the sharp drop in rental costs. But this is inconsistent with the private sector data and cannot pass the test of reasonableness.”
In fact, housing costs were one of the categories that immediately sparked heated discussions after the report was released.
Housing costs account for about one-third of the index in the United States, and a report from the U.S. Department of Labor shows that U.S. housing prices rose 0.2% month-over-month and 3% year-over-year between September and November.
Harvard economist Jason Furman posted on X: " The Bureau of Labor Statistics appears to have made a major judgment error in its calculation of housing costs (effectively assuming housing costs for October to be 0), resulting in an underestimation of inflation data ." "However, this error is unlikely to be politically motivated. Rather, it is more likely that they adhered to algorithms rather than relying on judgment."
Furman pointed out that if the impact of housing data were excluded, the inflation situation in the United States would also ease, but not by such a large margin.
“Hopefully the U.S. Bureau of Labor Statistics can clarify this matter,” Jade Koloko, a senior fellow at the Peterson Institute for International Economics, replied in an X post about Furman’s views. “There was a lot of confusion in the experts’ discussion this morning.”
Awaiting December data
According to Lang, an economist at the U.S. Navy Federal Credit Union, a “major driver” of the lower overall U.S. inflation data appears to be real: gasoline prices across the country have continued to decline steadily, reaching their lowest level in nearly four years.
Meanwhile, Sam Tombs, chief U.S. economist at Pantheon Macroeconomics, pointed out another issue: "A large portion of the U.S. commodity prices in November likely came from Black Friday discounts, and the discounts were larger than usual."
Thomas said, "Given that the collection of Consumer Price Index (CPI) data did not resume until November 14 after the government shutdown ended, the November CPI data must be treated with caution."
Currently, economists believe that the US data for December may provide clearer analytical results.
The data is currently scheduled for release on January 13, as government data collection will finally return to normal after the government shutdown ends. This will provide the Federal Reserve with clearer information before making its next interest rate decision later next month.
Lang stated, "The key is that we need to wait and see how the data performs in December and January. Inflation in November may not have eased, but it doesn't seem to be worsening either. This gives the Fed time to pause and assess the situation."
(Article source: CLS)
