After months of delays, the government’s November inflation report initially looked like a relief: Consumer prices were up just 2.7% from a year earlier, and core inflation slipped to 2.6%, the lowest level seen in years. But economists quickly warned the headline figures may be misleading, with housing data in particular setting off alarm bells given its outsized role in inflation.
“This is a wacky number,” Diane Swonk, chief economist at KPMG, told Fortune. “Shelter costs basically flatlined October by carrying forward September. When housing is that large a component, that really matters.”
Several economists pointed to the extended government shutdown as the underlying problem. The disruption hampered the Bureau of Labor Statistics’ ability to collect price data through October and into November. When operations resumed midway through November, the agency could not recover the missing data and instead relied on statistical assumptions — often carrying over prior prices — effectively treating some categories as if inflation had stalled.
Housing appears to have taken the biggest hit. Shelter makes up more than 40% of core CPI, yet the November data suggest rents and owners’ equivalent rent barely moved in October.
“We expected it to cool,” Swonk said, “For this low level, it seems a little bit too much.”
She cautioned that the effects won’t be confined to a single report. “Because of the assumptions that were made in October, it literally anchors the index going forward,” she said. “It lingers.”
Other oddities in the report added to the doubts. Gasoline prices, which Swonk said actually fell during the period, showed an increase on a seasonally adjusted basis. Daycare costs — long among the fastest-rising parts of services inflation — unexpectedly declined.
Joseph Brusuelas, chief economist at RSM, wrote in a blog post that the November CPI should be viewed with unusual skepticism.
“This was one flawed CPI report,” he wrote. “The November consumer price index report is full of noise and lacks the normal breadth and depth that the good folks over at the Bureau of Labor Statistics normally provide.”
Because October price data were never collected, Brusuelas said it’s nearly impossible to determine what’s really driving the apparent slowdown in inflation.
“A quotient of humility is in order here,” he added. “Because of the flawed report, it is better to state forthrightly that we do not have sufficient sense of price movements over the past two months.”
Markets appeared to share that view. A genuine inflation surprise would typically trigger a sharp rally — or, given recent dynamics, even a selloff as rate expectations reset. Instead, the response was subdued. Stocks edged modestly higher, and futures barely moved, suggesting investors largely discounted the report.
On paper, the data bolster the Federal Reserve’s recent rate cuts and strengthen the argument for another reduction early next year. Still, both Swonk and Brusuelas warned against drawing firm policy conclusions from numbers distorted by missing data.
“The Fed will take this with a grain of salt too,” Swonk said, noting similar caution around labor-market figures affected by the shutdown. “The Fed isn’t oblivious to this. What’s hard is that we have less real-time information on inflation than we do on the labor market.”
That gap is especially pronounced in housing, where affordability remains a major problem despite signs of cooling inflation. Swonk stressed that lower inflation does not equal affordability. Even if home prices level off, mortgage rates, insurance costs, and utilities continue to squeeze households. She noted electricity and natural-gas prices, long subdued, are rising again, partly due to energy-grid pressures linked to data-center growth.
President Donald Trump said in a national address Wednesday night that he would soon roll out “aggressive housing reforms” and promoted his planned choice to replace Jerome Powell as Federal Reserve chair with someone more dovish. Brusuelas said the bigger picture is that inflation right now offers no clear win. “Noise rather than signal is the major takeaway from the November CPI report,” he said.
Or, as Swonk summed it up: “We knew to take the data with a grain of salt. This one, we might need more than a few grains of salt.”
