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Author: Long Yue, Wall Street News
The credibility of key U.S. inflation indicators is under increasing scrutiny.The United States is increasingly relying on estimates rather than directly collected data to compile CPIs, which has sparked a lot of doubts on the eve of the Federal Reserve’s resolution.
On September 11, the U.S. Bureau of Labor Statistics (BLS) disclosed that in its August CPI report, the price ratio generated using a suboptimal estimation method called “hetero-imputation” or “different-cell imputation” has soared from 32% a month ago to 36%.This figure is not only the highest level since data records were recorded in 2019, but also far higher than the 9% ratio in February this year.
This method is used to replace the same product data from other geographical areas when a certain product price cannot be obtained in a specific region.This is considered a “sub-preferential” with lower accuracy when dealing with data loss problems.
The disclosure of this situation comes as the United States announced its August CPI, whose data itself basically meets market expectations and consolidates the market’s bet on the Federal Reserve’s upcoming interest rate cut.
Economists believe that increased use of estimation methods can harm the accuracy of the data.Alan Detmeister, UBS inflation economist, said that while it is not clear how much the alternative affects the macro level, the more important question is that the total number of price quotes in CPI has continued to decline over the past decade, which will increase the volatility of the data.
“Overall, this is decreasing the quality of CPI and its ability to track real inflation,” he said in a conference call last month.
The loss of personnel and political pressure: increased dependence on estimates
The Bureau of Labor Statistics’ growing reliance on estimation methods is closely related to the staff loss and data collection dilemma it has faced in recent years.
It is reported that the agency’s staff has continued to decline since Trump took office as president.Although BLS has not announced the specific number of churns, advocacy groups that keep in touch with existing and former employees estimate that the number of employees at BLS has dropped by at least 20%.The 2026 budget proposed by the Trump administration will further reduce the agency’s resources.
In addition, there are problems with the data collection of BLS itself.BLS said in June this year that due to insufficient resources, it has suspended the collection of CPI samples in three metropolitan areas, but its analysis believes that this has little impact on the overall CPI.However, by the end of July, the agency also said about 15% of other regional sample collections were also suspended, but did not state how this would affect inflation.
Omair Sharif, president of Inflation Insights LLC, said the two notices on the suspension of collections showed that about 19% of the price in the CPI is being estimated, up from 5.1% at the end of 2022.“If you stop collecting data from certain regions of the country, the proportion of ‘different unit estimates’ increases.”
Concerns about the quality of BLS data also occur under the background of the institution’s huge political pressure.Trump fired the BLS chief and accused her of manipulating data for political interests without evidence after an unusually large downward correction of the jobs report in July.
Amid a series of controversies, the U.S. Department of Labor Inspector General’s Office, which oversees the BLS, said Wednesday that it is launching a review of the agency’s “challenges” in terms of CPI, producer price index (PPI) and job data corrections.
