Inflation data threatened by US government's hiring freeze as tariffs loom

Business Standard

2 days ago

The Labor Department has cut back on the inflation data it collects because of the Trump administration's government hiring freeze, raising concerns among economists about the quality of the inflation figures just as they are being closely watched for the impact of tariffs.
The department's Bureau of Labor Statistics, which produces the monthly consumer price index, the most closely watched inflation measure, said Wednesday that it is reducing sample in areas across the country and added that it stopped collecting price data entirely in April in Lincoln, Nebraska, and Provo, Utah. It also said it has stopped collecting data this month in Buffalo, New York.
In an email that the BLS sent to economists, viewed by The Associated Press, the agency said that it temporarily reduced the number of outlets and quotes it attempted to collect due to a staffing shortage in April. The reduced data collection will be kept in place until the hiring freeze is lifted.
The cutbacks have intensified worries among economists that government spending cuts could degrade the federal government's ability to compile key economic data on employment, prices, and the broader economy. The BLS also said last month that it will no longer collect wholesale prices in about 350 categories for its Producer Price Index, a measure of price changes before they reach the consumer.
The inflation data plays a huge role in the US economy. It is used to calculate the annual cost of living adjustments for tens of millions of Social Security recipients and it helps determine the interest rate paid in about $2 trillion of inflation-adjusted Treasury bonds. Many private-sector wages are also influenced by the CPI.
The reduced data collection is also occurring at a time of heightened uncertainty about the economy and the impact of Trump's sweeping tariffs on hiring, growth and inflation. Officials at the Federal Reserve, for example, have repeatedly cited the cloudy outlook as a key reason they are no longer cutting their short-term interest rate, after reducing it three times late last year.
The PPI is cutting hundreds of indexes from production, and the CPI is now being constructed with less data, Omair Sharif, chief economist at the consulting firm Inflation Insights, said in an email. That alone is worrying given that we're heading into the teeth of the tariff impact on prices.
The BLS said that the cutbacks have minimal impact on the overall inflation data, but they may increase the volatility of the reported prices of specific items.
President Donald Trump froze federal hiring on his first day in office and extended the freeze in April until late July, suggesting future inflation reports will also involve less data collection. The White House could continue to extend the freeze indefinitely.
Sharif and other economists said the BLS hasn't released enough information to judge how big an impact the cutbacks are having on the inflation figures. But it could make them less slighly less accurate.
When you have a reduced sample size, it introduces more error into the estimate, Sharif said. "It creates the potential for the indexes to be more volatile and potentially less accurate.
Earlier this year, the Trump administration disbanded several advisory committees that worked with BLS and other statistical agencies on fine-tuning their data-gathering.
Alan Detmeister, an economist at UBS, an investment bank, said the cutbacks likely had little impact on April's inflation figures. But "if these types of cuts continue, they will degrade the reliability and efficacy of these statistical agencies, he said.
The BLS compiles the monthly inflation reports by sending hundreds of workers into retail stores across the country to gather thousands of prices. About 60% of the prices used in the inflation data are compiled in person, while about 35% are gathered online and 5% over the phone.
Erica Groshen, a former commissioner of BLS, said that the agency has lost about 15% of its personnel since the beginning of the year, a sharp decline that likely reflects falling morale stemming from the attacks on government workers by Elon Musk's DOGE.
She said the drop in staff and potential for cuts in funding could also threaten lesser-known economic measures, such as an index that tracks import prices, as well as a report that measures job openings.
These are things that are not required (by law) but that are still very important to figure out what is going on, Groshen said.