Key notes:
- CPI report will be incomplete due to shutdown, possibly reporting only November price levels
- Limited data reduces reliability, creating uncertainty around monthly inflation details
- Inflation likely to moderate, with tariffs lifting core goods but seasonal discounts capping prices
- Markets may react briefly, but questionable data limits lasting impact on Fed expectations
This will be yet another unusual report release, something akin to what we saw with the labour market report earlier this week. This time around though, just be wary that the BLS will not be releasing a full report for October and so market players will have to make due with a gap between the September CPI report to this one today.
So, what does this all mean?
Well, it's not exactly true that we won't see any October numbers. For some context, price data collection is typically conducted via in person or by phone, which wasn't possible during October amid the government shutdown. That being said, just over 20% of price data in the CPI basket is taken from a variety of sources that don't necessarily require personal collection as a whole. Instead, they rely more on online prices and private data providers.
As such, if the BLS does want to try and disseminate that information as part of the report, they can choose to do so. However, it remains to be seen how they would want to format and/or furnish the release today.
It could be a case where the BLS just opts out from reporting on the month-on-month figures and focus more on the year-on-year numbers instead. Or they could just provide index numbers for some of these subcategories for November and then letting market players work things out for themselves in benchmarking that to September, with October being the missing piece.
So, we'll have to just wait and see essentially. But Morgan Stanley is out with a note saying that: "Because of the shutdown, the individual months will not be reported, just a price level for November."
In terms of what analysts are saying, it seems to be more or less the same story though. Core goods inflation is likely to pick up a little more towards the end of the year, owing to tariffs continuing to filter into the economy. But amid potential seasonal factors i.e. Black Friday price discounts, there could be a downside bias to the November price figures as a whole. So, just watch out for that.
Overall, the inflation picture should continue to point to some light moderation in price pressures and that likely will be the key takeaway once again when the dust settles. Barring any major surprises, traders and investors could react more strongly to the initial numbers than to the other key risk events today; that being the BOE and ECB policy decisions.
I mean, we very well expect a rate cut by the BOE and none from the ECB. So, there shouldn't be much drama to that. As such, the US CPI report is what will likely be a stronger play for volatility in trading conditions for the day ahead.
But given time, I would expect market players to fade any major reactions to the numbers today amid data quality issues with regards to the monthly sampling for November and the limited reliability on the details for October.
So unless there is a major surprise to inflation developments, we could still look for a tamer market reaction in the bigger picture. That especially since the next Fed rate cut is only priced in for June next year. There's no need to go rushing to price in something based on questionable data when there is still many months to go before figuring things out.
