By David Enna, Tipswatch.com
Since there were very few month-to-month price changes detailed in the November inflation report, we are all left wondering about key areas that resulted in surprisingly low inflation for the September to November period.
This CPI report by the Bureau of Labor Statistics has been highly criticized by economists and inflation experts. Headline and core inflation numbers rose by less than half the number predicted by experts, with all-items CPI rising 2.7% over the 12 months to November, and core up 2.6%.
The BLS produced little data on overall month-to-month inflation changes, but reported that CPI was up only 0.2% total in the two months of October and November. At a time when annual inflation was running at 3.0%, this appears to be cutting the inflation rate by more than half from an expected monthly rate of 0.25%.
However, a decline from 3.0% all-items inflation in September to 2.7% in November is not unusual. And in fact over the last 10 years, annual inflation rates have fallen half the time in that September to November period.
There has been widespread skepticism (including strongly from Tipswatch readers) about the validity of the November inflation report. From Bloomberg’s report:
In a report fouled by the record-long government shutdown, inflation in several categories that had long been stubborn seemed to nearly evaporate. Chief among those were shelter costs, which make up about a third of the consumer price index, but other categories like airfares and apparel notably declined. …
Stacey Standish, a spokesperson for BLS, said the agency used a process called carry-forward imputation for key housing price metrics. This method “imputes the price by using data from the last collected period, effectively proceeding as if the price had not changed,” she said. “Rents for October 2025 were carried forward from April 2025, yielding unchanged index values for rent and owners’ equivalent rent for October.”
OK, I am confused. Carry forward rent data from April 2025? Leading to zero increase in shelter costs in October? Can someone help me understand? From a Fortune report:
“This is a wacky number,” Diane Swonk, chief economist at KPMG, told Fortune. “Shelter costs basically flatlined October by carrying forward September. When housing is that large a component, that really matters.”
Housing appears to be the most distorted category. Shelter accounts for more than 40% of core CPI, yet the November report implies rents and owners’ equivalent rent was essentially zero in October.
“We expected it to cool,” Swonk said, “For this low level, it seems a little bit too much.”
She warned those assumptions don’t simply affect one month’s data. “Because of the assumptions that were made in October, it literally anchors the index going forward,” she said. “It lingers.”
More from Barron’s:
Cris de Ritis, deputy chief economist at Moody’s Analytics, said it’s best not to draw too much signal from the latest shelter data. He notes that market data on apartment rents have been weak, making the downward trend plausible. “It’s the magnitude we’ll want to examine with some caution,” de Ritis said.
“The CPI report definitely comes with an asterisk this month, given the carry-forward assumptions the BLS had to make,” de Ritis said. “It’s not unprecedented for disinflation to occur over a 2-month stretch in the history of the series, but it has been rare.”
Because we got no month-to-month data for October and November, I decided to look at look at changes in September to November annual price increases for major consumer categories. It’s about the only indication we have to determine — in theory — where inflation is declining or rising.
This chart suggest a strong trend of disinflation in the U.S. economy, with most areas outside of energy seeing declines in annual inflation rates. The decline in shelter to 3.0% was a huge factor in both the all-items and core inflation declines.
In an FAQ on its processes for this inflation report, the BLS gave a very foggy update on shelter calculations:
BLS calculates rent and owners’ equivalent rent using six-month panel collection. How will the missing October 2025 data impact the April 2026 rent and OER indexes?
BLS is researching how the missing October 2025 data for rent and OER will affect the 6-month change for April 2026 data.
One of the unique issues created by the government shutdown is that October inflation numbers simply don’t exist. For example, the BLS noted:
For some programs, products with missing data may be curtailed. For example, the CPI latest numbers page will be temporarily disabled, and the CPI inflation calculator will not calculate output using October 2025 data. … In the BLS Public Data API and the database, a dash will represent a missing data value, and associated net and percent changes will not be visible.
The end result, possibly, is that we will see lower annual inflation numbers going forward at least for several months, even if the monthly data are accurate. It will take some time to recover from “theoretical” 0.1% inflation for both October and November.
I have noted that I don’t believe that the BLS set out to please the White House by publishing low inflation numbers. But I do believe these statisticians now have reason to guess on the low side when they are estimating inflation, and this November report was full of guesses.
See: U.S. annual inflation falls to 2.7% for November, a surprising drop
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Here’s how I understand what the BLS is up to.
The CPI Housing Survey collects price observations of rental housing units in urban areas across the United States. The country is divided up into sample units which are future divided into 6 units called panels. The CPI program then collects rent data from each panel every 6 months since many rents change infrequently, being locked in place for a given lease term, and collecting rent data less frequently allows for a larger sample. Most rents included in the sample are continuing rents, and only a minority of observations are rents which have changed since the previous observation period. The rents for panel 1 are collected in January and July; panel 2, in February and August, etc. Panel 4 rents are collected in April and October … except this year they were not collected this October, so BLS just used the same values from April. Those April 2025 values will remain in the computation until April 2026 when panel 4 rents will be collected again.
for lots more details follow the link
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm
Jim, this is stellar information, thank you. This means, I think, that the overall values from April did not determine the October 2025 shelter number. But because there were no new data from Panel 4 — the only new data the BLS was going to get — the September overall shelter index was carried forward with zero increase. That won’t continue into December, but unless those panel 4 numbers are updated, shelter inflation will continue to be under-reported, by a bit, through April 2026. (Unless BLS fixes this.)
I would say it is a default. Holders are now deprived of an accurate determination of the principal of their bond and the interest that accrues on that principal. Yes CPI has problems, we all signed on knowing there were quirks in the calculation, but this is a failure to perform the government’s side of the deal. And even if you think this will be ironed out in time, the agreed principal amount today for someone needing to sell is unknown. If Treasury had declared that they could not process a payment on a regular bond because of the shut down and would get around to it later, it would have been a default. I don’t see a difference when they fail to gather data and make a calculation that impacts the principal amount of a bond in a timely manner. And if we suspect that there is ill intent or even just a predisposition to go low on the numbers it is even worse. I won’t sell out on this, but have to seriously reconsider allocating to new TIPS without something much more than is currently offered by the market as the spread over “guesstimatedinflation.”
Scary that our country’s economic decisions are based on sketchy data, at best.
When one mentions trend, one thinks of technical analysis. I do not see the downtrend.