October’s CPI Report Is in Jeopardy. What That Means for Rate Cuts.

Once the shutdown commenced on Oct. 1, the BLS halted all collection, processing, and publication of economic indicators.  (Anna Moneymaker/Getty Images)

Key Points

• The government shutdown halted data collection for economic indicators, potentially jeopardizing the October Consumer Price Index report.
• Even if the BLS is able to publish an October CPI print, it will likely be delayed beyond the current release date of Nov. 13.
• A delayed or unreliable CPI report could complicate Federal Reserve policy decisions, potentially influencing interest rate cuts.

The Bureau of Labor Statistics managed to publish the latest inflation print for September on Friday, but with the government shutdown keeping data collection on hold, future releases could prove challenging.

Friday’s consumer price index was published only because the Social Security Administration also needed the CPI report to calculate inflation-adjusted benefit payments.

The BLS noted on Friday that the data collection necessary for the September report was completed before the shutdown started Oct. 1.

Once the shutdown commenced, the BLS halted all collection, processing, and publication of economic indicators. That means it couldn’t deploy surveyors to the field to collect the real-time pricing data needed to help generate the inflation index. That could jeopardize the agency’s ability to publish a statistically sound report for October.

“The White House has learned there will likely NOT be an inflation release next month for the first time in history,” the administration said in a post on Friday. “The economic consequences could be devastating.”

The BLS hasn’t confirmed the October CPI report won’t be released.

“Once funding is restored, BLS will resume normal operations and notify the public of any changes to the news release schedule on the BLS release calendar,” the agency said in a statement to Barron’s.

That not only includes the CPI, but also labor data such as monthly payroll growth, wages, job openings, and the unemployment rate—as well as reports like productivity and the producer price index. Additionally, the Bureau of Economic Analysis and Census have also halted operations for the duration of the shutdown.

The inflation data, however, is the biggest concern given it is the most labor intensive and collection occurs throughout the month, said Matt Bush, U.S. economist at Guggenheim Investments.

“I think things like the jobs data will still get published. You can kind of do that in an expedited way or delay when the survey occurs and push back the reference week. I think it’s a lot harder to do that for CPI collection,” Bush said.

There are two issues at play for the October CPI: data collection and staffing, said Omair Sharif, the founder and president of Inflation Insights.

“My view is that the BLS can almost certainly publish an Oct CPI report even if the government reopens in the first week of November,” Sharif told Barron’s. “I don’t think data collection will necessarily be the main issue. The bigger problem for them is one of staffing.”

By Sharif’s calculations, the CPI prints generated have been running at about 80% of the typical sample size since April due to lower staffing.

“At some point, they will have to make a decision about focusing on the Nov CPI (assuming we reopen in November) instead of October,” he added, noting the tipping point may be having the government reopened and the BLS staff back at their desks by Nov 10.

When a 16-day government shutdown in 2013 affected CPI data collection, the BLS reported the sample of prices used to calculate the index was smaller, about 75% of the amount usually used.

Even if the agency is able to rally the staff and collect the necessary data to publish an October CPI print, it will likely be delayed beyond the currently scheduled release on Nov. 13.

At the very least, because of the potential for a reduced sample, there are real concerns about data reliability.

“The Bureau of Labor Statistics will be making educated guesses on pricing, which will cause many to question the data until the BLS can have the two to three months to catch up following the shutdown,” wrote Joe Brusuelas, chief economist for RSM US LLP.

There are already a lot of concerns about the quality of the economic data, broadly, and with CPI data in particular, Bush added. Moreover, the way the data is collected—with some prices collected only every two months, some only every six months—could reduce reliability in way that would “echo on” for several months and create more uncertainty.

“It’s not a helpful situation for investors or for policymakers because of that,” he added.

It could also sway officials to hold off on additional rate cuts at the Dec. 9-10 meeting of the Federal Open Market Committee.

Policymakers, like everyone else, have been forced to lean more on alternative data sources to get a timely read on economic conditions. In some areas, such as labor conditions, Bush said private data can be a decent proxy. Credit and debit card spending data can also be used to get a fairly accurate read on consumer spending. But for inflation, there are not as many solid alternative data sources that provide a comprehensive picture of pricing pressures.

“It obviously makes a harder job for the Fed,” Bush said, adding that it reinforces the idea policymakers will probably lean into their pre-shutdown bias in terms of where policy should head—that labor market risks override inflation concerns.

“That’s why we think even with less data than usual, they’ll cut at the October meeting and our expectation is for another cut in December because these labor market concerns will continue to override the inflation concerns,” Bush said.

But with far less data to depend upon and more delays ahead, predicting the next Fed move becomes far less certain.

Write to Megan Leonhardt at megan.leonhardt@barrons.com