The Nugget
- The potential for significant revisions to the US Consumer Price Index (CPI) seasonal adjustments is causing anxiety among policymakers and investors, given its implications for inflation measurements and monetary policy decisions.
- Last year's notable revisions altered the perceived trajectory of inflation, reminding stakeholders that these adjustments can significantly impact the economic outlook and policy planning.
Key insights
CPI Seasonal Adjustments and Their Impact
- The Bureau of Labor Statistics (BLS) conducts annual revisions to the CPI's seasonal adjustments to account for predictable fluctuations, aiming to present a more accurate picture of inflation trends without seasonal distortions.
- Last year’s revisions notably increased the rate of core inflation for the final quarter of 2022 from 3.1% to 4.3% on an annualized basis, challenging initial perceptions of slowing inflation and influencing interest rate expectations.
Market and Policy Reactions
- This year, there's heightened attention on the upcoming revisions due to last year's impact. However, some economists, including those from Bank of America and Morgan Stanley, suggest that such dramatic revisions are uncommon and may not reoccur this time around.
- Despite attempts to downplay expectations for significant changes, the possibility of revisions has sparked concerns among Federal Reserve officials and the market, as major adjustments could alter the trajectory of monetary policy decisions.
Key quotes
- "My hope is that the revisions confirm the progress we have seen, but good policy is based on data and not hope." - Fed Governor Christopher Waller
- “Last year’s CPI revision was an outlier. From a purely statistical standpoint, the chances of seeing another outlier in the upcoming revisions are low.” - Morgan Stanley economists
Make it stick
- The annual CPI adjustments serve as a reminder that even the most seemingly mundane statistical revisions can wield significant power over economic perceptions and policy directions.
- Understanding the role of seasonal adjustments in economic data like the CPI is crucial for a comprehensive interpretation of inflation trends.
This summary contains AI-generated information and may have important inaccuracies or omissions.