Economists are anticipating significant challenges in interpreting the upcoming inflation data, particularly influenced by a recent government shutdown. The December Consumer Price Index (CPI) report, set for release by the Labor Department, comes with expectations of persistent inflation above the Federal Reserve’s goal of 2%.
December Inflation Data Expectations
The consensus forecast from FactSet estimates a 0.3% rise in headline inflation for December, translating to a 2.6% yearly increase. Core inflation, excluding volatile food and energy prices, is also projected to rise by 0.26% month-over-month and 2.6% from the previous year. However, many experts express concern over the validity of these figures due to the 43-day government shutdown that concluded in mid-November.
Impact of the Government Shutdown
Economist Greg Daco from EY-Parthenon highlighted the shutdown’s impact on data collection, noting that it introduces considerable uncertainty. He stated, “Most of the data was affected by the government shutdown,” leading to what could be an “extremely muddy report.”
- December CPI forecast: 0.3% monthly increase.
- Year-over-year CPI forecast: 2.6% rise.
- Core CPI expected to rise: 0.26% monthly, 2.6% yearly.
Daco elaborated on how the Bureau of Labor Statistics (BLS) utilized a “carry-forward methodology,” assuming prices remained unchanged during certain months instead of accurately reflecting price changes. This approach is particularly controversial in housing price data, where significant assumptions about rent and owners’ equivalent rent were made.
Long-Term Forecasts and Risks
Analysts predict the ongoing consequences of the data collection issues will distort inflation readings until April 2026. Oxford Economics noted similar expectations, forecasting a 0.3% rise in both headline and core CPI for December. They warned that the distortions resulting from the shutdown will create challenges in interpreting the inflation signals.
Market Reactions and Future Implications
The anticipated report could pressure Federal Reserve policymakers as they navigate economic recovery while addressing inflation. They face divided opinions regarding potential rate cuts, highlighting the delicate balance they must maintain in ongoing economic management.
- Expectations of downward bias in December CPI report.
- Potential adjustments in inflation data through April 2026.
- Implications for Federal Reserve policy decisions regarding interest rates.
As these developments unfold, small businesses and consumers alike wait for clearer signals on economic stability amidst rising inflation and evolving market dynamics. The December inflation data may prove vital in shaping future economic policy and market direction.
