December inflation data will be 'extremely muddy' economists warn

• The Bureau of Labor Statistics used a 'carry-forward methodology' during the shutdown, assuming no price changes when surveys couldn't be conducted, imparting artificial downward bias especially in housing data (rent and owners' equivalent rent)
• November's CPI data collection coincided with holiday discounting periods, further distorting readings in categories like apparel and recreation goods
• Consensus forecasts expect headline CPI up 0.3% monthly and 2.6% annually, with core inflation also at 2.6%, though some economists see upside risk to 2.8% due to data collection uncertainties

Summary

Key Development:

The Labor Department is scheduled to release December's Consumer Price Index (CPI) on Tuesday, with economists warning the data will be significantly distorted by the 43-day government shutdown that ended mid-November.

Consensus Forecasts:

• Headline inflation: +0.3% monthly, +2.6% year-over-year
• Core inflation (excluding food and energy): +0.26% monthly, +2.6% year-over-year
• Both measures remain above the Federal Reserve's 2% target

Data Collection Issues:

The shutdown disrupted normal price collection methods, forcing the Bureau of Labor Statistics (BLS) to use a "carry-forward methodology" that assumes no price changes during affected periods. This approach created an artificial downward bias in the data, particularly impacting:

• Housing metrics (rent and owners' equivalent rent)
• Apparel and recreation goods (November data collected during holiday discount periods)

Expert Analysis:

EY-Parthenon chief economist Greg Daco projects headline and core CPI at +0.3% monthly and +2.7% year-over-year for December, with upside risk to 2.8%. He warns the downward bias will persist through April 2026, as housing data operates on a six-month rolling basis.

Market Implications:

Oxford Economics confirms the shelter component will print artificially low until April 2026, making it difficult for investors and the Federal Reserve to gauge true inflation trends. The distortions complicate monetary policy decisions and market positioning, as the offset to the downward bias won't occur immediately and its timing remains uncertain.