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CNBC
44 minutes ago
- CNBC
Wall Street is concerned about the reliability of government inflation data on eve of CPI
This week's inflation data will be huge for markets, and not just for the numbers. Beneath the Bureau of Labor Statistics' reports on consumer and producer prices will be simmering questions over the data's validity. Those concerns have accelerated as budget cutbacks have forced the agency to change the way it collects data. On top of that, President Donald Trump's decision to fire the BLS commissioner after the July nonfarm payrolls release raised worries that the bureau could be politicized. Doubt over the accuracy and integrity of the data is a serious issue considering how much BLS work is used to formulate policy, calculate Social Security payments and inform any number of other political and economic decisions. "I feel like this data that is coming out is getting much less reliable, and this has been building for a long time," DoubleLine CEO Jeffery Gundlach said last week on CNBC. Staffing and funding is one issue. Trump's decision earlier this month to fire Erika McEntarfer as the BLS chief is another. The move "has raised questions about whether and by how much the quality of official data produced by official U.S. government agencies could be compromised," Morgan Stanley economist Michael Gapen said in a note. "Official U.S. data has never been perfect, but has been of high quality, compiled impartially, and useful in the setting of policy." Questions on multiple fronts Gapen's sentiments mirror those around Wall Street, where written commentary has broken down the various issues the BLS has already faced in terms of budget cuts that have pushed it to alter the way it is collecting some data. Also, notable revisions the BLS has applied to its critical monthly payrolls count have raised concerns, including accusations from Trump that the McEntarfer-led BLS was manipulating the data for political purposes. BLS officials weren't immediately available to respond to CNBC requests for comment. Outside of political circles, there are few on Wall Street who place credence in the notion that the BLS is doing anything nefarious with the data. However, the bureau's often primitive way of collecting jobs data — largely through phone calls and written surveys — has fed into caution about the reliability of pre-revisions data releases. Survey response rates have been steadily sliding, forcing the BLS into bigger revisions. "Significant downward revisions to job growth and increased imputation for CPI have raised questions about the reliability of the official statistics," Bank of America senior U.S. economist Aditya Bhave wrote. "We argue the data remain reliable, though we would recommend being careful with the initial jobs data." Looking for inflation clues On the market's plate this week, though, are the two key inflation readings, first with the consumer price index on Tuesday, then the producer price measure, considered a gauge of costs at the wholesale level, on Thursday. At issue for the BLS is its move to stop collecting CPI data from several cities due to staffing limitations, as well as the growing use of imputed data, or estimating price movements in areas where it can't get exact information. In those cases, the BLS will try to use data from another source, preferably somewhere near to the locale it is surveying, but sometimes it has to use prices from other urban areas as assumptions. When the imputed data comes from a local source it has a higher degree of reliability. But Gapen and other economists worry that if the BLS has to rely on "different cell" imputation, the chances for higher variance increase. Estimates are that some 35% of BLS data for its price reports is affected in some way by imputing. Bank of America estimates that a combination of different-cell imputation and the varied impact of tariffs likely will alter the headline CPI reading by only a basis point or two — 0.01 or 0.02 percentage point. It's still a consideration, though. "In more normal times, that may be too small to matter, but in today's environment every basis point counts," Bhave said. "Still we do not think the BLS' decision to reduce the CPI sample is enough to warrant alarm over the signal from the inflation data." Impact on Fed moves Indeed, precision will matter as the Federal Reserve closely monitors inflation data and charts its monetary policy course. Economists surveyed by Dow Jones expect the all-items CPI to show a 0.2% increase for July, putting the 12-month inflation rate at 2.8%, up 0.1 percentage point from June. Excluding food and energy, the respective forecasts for core inflation are 0.3% for the month and 3.1% for the year, the latter up 0.2 percentage point from a month ago. The Fed targets inflation at 2%. Beyond those numbers, Wall Street will be poring through the data for readings on tariff-sensitive items. Should those goods and services not point significantly higher, it would encourage the Fed to cut rates in September. However, higher readings could keep policymakers in the wait-and-see posture that has dominated the year so far. "Sequential firming in inflation is one key factor behind our view that the Fed will remain on hold at the September meeting despite recent employment data that point to a sharp slowdown in labor demand," Morgan Stanley's Gapen wrote. Traders widely expect the central bank to cut the fed funds in September, then at least once more before the end of the year, but Wall Street economists are in multiple camps. For instance, Morgan Stanley and Bank of America both see no cuts this year, while JPMorgan Chase anticipates three — equal to one at each of the remaining meetings. Those forecasts could change, though, depending on what the data says — and how the BLS data is viewed. "Taken at face value, the new procedures implemented by the BLS should not introduce systematic bias into its estimates of CPI inflation, but it will increase volatility in future CPI prints," Gapen wrote. "That said, the devil is in the details."
CNBC
2 hours ago
- CNBC
Chinese tech giants, AI startups build around Nvidia H20 chips
CNBC's Eunice Yoon joins 'Money Movers' to discuss Nvidia's H20 chips being under pressure from Chinese tech giants and startups.
Yahoo
3 hours ago
- Yahoo
July CPI report expected to show inflation accelerated amid tariff pressures
July's Consumer Price Index (CPI) is expected to show prices rose at a faster clip annually compared to in June. The report, due Tuesday at 8:30 a.m. ET, comes as investors stay alert to how much President Trump's tariffs are starting to affect consumer costs. According to Bloomberg data, headline CPI is expected to have increased 2.8% year over year in July, up from a 2.7% rise in June. On a monthly basis, prices are forecast to increase 0.2%, a slight slowdown from June's 0.3% gain, driven by lower gasoline prices and expectations of moderately softer food inflation. On a "core" basis, which strips out volatile food and energy prices, the annual inflation rate for July is expected to tick up to 3.0% from June's 2.9%, indicating that rising goods inflation is no longer being offset by easing services inflation. Core prices are also projected to climb 0.3% month over month, outpacing the previous 0.2% rise seen in June and marking the strongest gain in six months. In June, signs of tariff-driven cost pressures emerged, with apparel prices up 0.4% on a monthly basis and footwear rising 0.7% after several months of declines. Furniture and bedding prices also gained 0.4%, reversing May's 0.8% drop, another signal that these higher costs are starting to reach consumers. Read more: What Trump's tariffs mean for the economy and your wallet "The July CPI will bring further signs of higher tariffs pushing up prices," Wells Fargo economist Sarah House wrote last week. "It is still early in the price adjustment process to see how higher import taxes will ultimately be distributed between the end-customer, domestic sellers and foreign exporters." "At the same time, growing consumer fatigue is making it more difficult to raise prices in general," House added. "We continue to expect inflation to pick up, but not ratchet higher, over the second half of the year, with both the core CPI and core PCE deflator returning to around 3% in the fourth quarter." Tuesday's report is set to arrive amid ongoing trade developments that could further alter the US effective tariff rate, now hovering near 18.6% — the highest since 1933, according to the latest Yale Budget Lab estimate. Still, markets are increasingly betting the central bank will lower interest rates at its September meeting, driven largely by concerns over the US labor market's health after significant downward revisions, alongside persistent inflation. "CPI could leave [the] Fed with dual headaches," Citi analyst Stuart Kaiser wrote in a preview of the report, adding investors will likely focus on updates to core goods prices. Read more: How to protect your savings against inflation "Goods inflation ticked up last month and may be an issue in upcoming reports too, as tariffs make their way through the system," Kaiser said. "The FOMC had 2 dissents in July and there is some uncertainty about the path forward (particularly if inflation heats up) although the direction of travel is clearly lower for policy rates." As of Tuesday afternoon, investors were placing an 87% probability the Fed cuts rates by 0.25% at its September policy meeting, up from 57% last month, according to the CME FedWatch Tool. Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
