The latest Consumer Price Index (CPI) report from the United States showed a notable decline in headline inflation. This dovish chatter and speculation sent markets into a short-lived euphoria, fueled by the prospect of disinflation making a comeback. When the Clarksburg report came out last week, it painted a rosy picture. That year, it was released with such large data gaps that analysts started calling it “Swiss cheese.”
Per the report, headline inflation cooled sharply last month, a sign that price pressures may be starting to ease. Further, core inflation, which strips out the often-volatile food and energy component, unexpectedly dropped to the downside. This double-whammy of decreasing rates of inflation seemed like an early Christmas present for investors and economists both.
Yet the report’s optimism must be greatly lessened by huge gaps in the October pricing data. That’s because big chunks of the data are still missing. Critically important components like shelter—which have a large influence on the CPI basket—are missing. The lack of this key information led industry analysts to question the accuracy and reliability of the report.
The missing pieces were mocked up like they showed zero price inflation, making the whole CPI report even harder to interpret. Although markets cheered the disinflation, those signs, many analysts warned, on a report that isn’t even close to complete data.
Shelter is the most important component of the CPI calculation, and so it has an outsized power in driving trends in overall inflation. The lack of data in this space raises many questions. It’s misleading, at best, and it gives the false impression that inflation is fading quickly and widely throughout the economy.