One of the fundamental lessons I have learned during my career as a public-facing economist is to focus on the signal rather than the noise.
The November consumer price index report is full of noise and lacks the normal breadth and depth that the good folks over at the Bureau of Labor Statistics normally provide. It’s hard to fault them—the data was heavily compromised by the extended government shutdown.
When looking at the November inflation data, one should proceed with caution around making policy and investment decisions.
Growth in inflation eased to a 2.7% pace overall, and to 2.6% excluding food or energy.
Because of an inability to retroactively collect the October data, it is difficult to precisely identify why top-line inflation slowed.
The Bureau of Labor Statistics clearly did not have the time nor the resources to put forward a complete report. The impact of the shutdown on the data will continue into early 2026.
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In particular, if one backs out the housing data, it implies that the BLS has assumed that rent and owners’ equivalent rent were somewhere around zero in October, which one might be able to arrive at technically but is not well aligned with what can plainly observe.
A quotient of humility is in order here. Because of the flawed report, it is better to state forthrightly that we do not have sufficient sense of price movements over the past two months to be in possession of clear explanation of why inflation eased.
Divergence between the top-line and core categories and the underlying detail on a year-ago basis supports a conclusion that we just do not know and should wait for further inflation data to begin making further policy decisions.
Policy implications
On the surface, both the top-line and core data support the December rate cut and will clearly feed into calls for another 25 basis-point rate cut in January. But because of distortions in the data collection caused by the government shutdown, we are not comfortable with another rate cut at this time; the detail in the data is not well aligned with the top line or the core.
The primary takeaway from the November report with respect to policy is that it makes sense to wait for more data, especially in the housing sector and services.
The data
The year-over-year data showed a 5.4% drop in airfares, which was the only notable decline in the data reported. Slower growth was reported in apparel with a 0.2% increase, gasoline at 0.9% and new vehicles at 0.6%.
In the services category, which traditionally accounts for greater than 60% of the index, increased by 3.2% and services excluding energy was up by 3%.
Energy costs rose by 4.2%, fuels and utilities by 6.5%, food and beverages by 2.6%, and used cars and trucks by 3.6%.
The cost of housing increased by 3.5%, shelter by 3% and the owners’ equivalent rent series, which the Federal Reserve closely monitors when setting policy, increased by 3.4%.
Medical care increased by 2.9% and transportation rose by 1.6%.
The takeaway
Noise rather than signal is the major takeaway from the November CPI report. It will be some time before we have a good sense of inflation dynamics amid what the public has decided is a real affordability crisis.
