Massive revisions shook the jobs report. Tuesday's inflation data could get cloudy, too

CNN

2 days ago

The next batch of inflation data from the Bureau of Labor Statistics was already shaping up to be a high-profile affair due to the expected impact of President Donald Trump's hefty tariffs. But after Trump fired the agency's top statistician, Tuesday's report now comes with some other, unexpected baggage.
July's Consumer Price Index is set to be released at 8:30 a.m. ET on Tuesday, just 11 days after Trump's unprecedented firing of the head of the BLS, following a lackluster jobs report that contained substantial revisions to prior months of employment data. The president baselessly claimed that BLS Commissioner Erika McEntarfer 'rigged' the data (an allegation that Trump's former BLS head and a cadre of statisticians and economists resoundingly disputed).
Moreover, the data that feeds into the CPI could make the closely watched inflation gauge subject to greater revisions, in part due to Trump administration's budget and staffing cuts.
'There's going to be a larger margin of error with an expectation of rolling revisions to the CPI data in a way that is somewhat similar to what we see in the jobs data and the durable goods data,' Joe Brusuelas, chief economist at RSM US, told CNN.
The BLS, one of many federal agencies subject to the Department of Government Efficiency's blunt axe, has increasingly cut back on the data collection that feeds into the critical pricing gauge.
Since April, the BLS stopped collecting data in three not-so-small metro areas (Buffalo, New York; Lincoln, Nebraska; and Provo, Utah) and further leaned on an imputation process used to estimate prices by means other than direct, local observations (such as making price comparisons on a regional or national basis instead).
The BLS said in early June that the tri-city collection reductions (which amounted to roughly 3.6% of the CPI's overall sample) were expected to have 'minimal' impact on the overall index but increase the volatility of geographic- or item-specific price indexes.
Two weeks ago, the agency shared a statistical analysis of those cutbacks using a 77-month study period. It showed that the annual inflation reading was one-tenth of a percentage point higher in 18% of those months and one-tenth of a percentage point lower in 14% of those months.
In that same notice, however, BLS also disclosed that it made a 15% wholesale reduction in collections across the other 72 coverage areas.
'Collection suspension affects both the Commodity and Services Pricing survey and the Housing survey,' the BLS wrote. 'As a result, the number of collected prices and the number of collected rents used to calculate the CPI has temporarily been reduced.'
The BLS did not share any statistical analysis of those wider cuts nor provide enough information for others to estimate that, Alan Detmeister, a UBS senior economist who previously helmed the Federal Reserve's Wages and Prices section, told CNN.
'The 15% of the remaining sample is four times larger than the number of observations dropped than those three cities,' he said. 'And if those three cities already made it round differently a third of the time. You're probably talking a tenth or so on overall inflation. Not huge, but it's something.'
'It's definitely degrading the quality of the inflation statistics,' he said.
While the reductions in price observations and increase in imputations could make the CPI data — especially on a monthly basis — less sharp, it's not expected to cause similar large variations as seen in the survey-driven jobs report, which is reliant on an increasingly shrinking sample of respondents, RSM's Brusuelas said.
'It's going to bore us to sleep watching the back revisions in the CPI and [Personal Consumption Expenditures] data,' he said.
The issues of greater importance involving the CPI data is what Tuesday's numbers say about the trajectory of inflation and any coinciding pushback from the Trump administration on any report that shows tariffs are driving prices higher, Brusuelas said.
For any presidential administration, that's 'tantamount to engaging in self-harm, attempting to tell the public that prices aren't rising, when they can clearly feel it in their own bottom lines and reduced purchasing power of their paychecks,' he said. 'You saw what happened when the Biden administration tried to play down price increases as inflation growth was slowing. It did not resonate.'
In June, CPI rose to 2.7%, its highest level in four months, as price increases — including those from tariffs — packed a bigger punch.
July's CPI is expected to tell a similar tale: Tariffs are causing higher prices on a wider swath of goods while falling gas prices and tepid consumer demand is keeping a lid on some services prices.
All in all, the index is expected to rise 0.2% for the month and tick up to 2.8% on an annual basis, according to FactSet consensus estimates.
The July CPI will show 'further evidence of tariff-induced inflation eroding the purchasing power of consumer paychecks,' Brusuelas said. 'The thing to understand is this is not going to happen with a bang but more of a slow deterioration in purchasing power.'