U.S. consumer inflation appeared to slow in November, offering a headline improvement that policymakers and markets have been waiting for, but the underlying picture was far less straightforward. The annual cooling in price growth was shaped not only by economic forces such as easing demand and gradual tariff pass-through, but also by an unusual statistical distortion caused by missing data during a prolonged federal government shutdown. As a result, the latest inflation reading provided reassurance on the surface while complicating the task of interpreting where price pressures are truly heading.

The Consumer Price Index showed a slower annual increase than economists had expected, reinforcing the narrative that inflation is easing from its recent peaks. Yet economists and central bankers alike cautioned that the report’s structure, gaps, and timing made it an unreliable guide to underlying trends. Instead of offering clarity, the data forced analysts to disentangle genuine disinflation from measurement artefacts.

How the shutdown reshaped the inflation picture

The most consequential factor shaping November’s inflation report was not consumer behaviour or corporate pricing power, but a disruption to data collection itself. The 43-day federal government shutdown halted the Bureau of Labor Statistics’ ability to gather price data during much of October and early November, creating an unprecedented break in the CPI series. Normally, prices are sampled continuously across the month. In this case, much of the data was collected later than usual, when seasonal discounting had already begun.

Because the October CPI could not be published and missing observations could not be reconstructed, the BLS relied on methodological adjustments that assumed unchanged prices for large parts of the basket. While this allowed the agency to produce a report, it also introduced a mechanical downward bias. Price increases that may have occurred earlier were effectively smoothed over, dampening the measured pace of inflation.

This methodological distortion explains why many economists described the report as incomplete or “Swiss-cheese-like.” It did not necessarily misreport prices that were observed, but it failed to capture those that were never recorded in the first place.

Holiday discounts and timing effects

The timing of data collection further skewed the results. Much of the November sampling occurred during the latter half of the month, when retailers typically roll out holiday promotions. Discounts on apparel, electronics, and household goods tend to intensify around Thanksgiving, temporarily lowering measured prices even if underlying cost pressures remain.

In a normal month, these effects are diluted by data collected earlier, before promotions begin. In November, they were magnified. As a result, categories sensitive to seasonal discounting likely exerted disproportionate downward pressure on the index, reinforcing the illusion of broad-based cooling.

This does not mean inflation is not slowing at all, but it does mean that the pace of moderation suggested by the headline figures almost certainly overstates the improvement.

Tariffs, costs, and delayed pass-through

Beneath the distorted headline, several inflation drivers remain firmly in place. Import tariffs imposed earlier have continued to work their way through supply chains, lifting costs for retailers and manufacturers. Many firms initially absorbed these costs or relied on pre-tariff inventories to delay price increases. That buffer is now diminishing.

By late summer, a significant portion of tariff-related costs had already been passed on to consumers, and economists expect that share to rise further in the coming months. This gradual transmission helps explain why certain goods prices remain elevated even as overall inflation appears to cool.

Food prices provide a stark example. Beef and coffee prices surged at double-digit annual rates, reflecting a combination of tariffs, supply constraints, and global commodity dynamics. Although some duties have been rolled back, the lag between policy changes and retail prices means consumers are unlikely to see immediate relief.

Electricity prices also continued to climb sharply, driven by structural demand rather than temporary shocks. Rapid expansion of data centres supporting artificial intelligence and cloud computing has increased baseline electricity consumption, while grid constraints and investment costs have pushed utilities to raise prices.

These pressures are unlikely to fade quickly and sit largely outside the influence of short-term monetary policy. As a result, even if headline inflation moderates, households remain exposed to rising costs in essential categories that shape perceptions of affordability.

At the same time, some volatile components moved in the opposite direction. Egg prices fell sharply and gasoline prices remained relatively contained, highlighting how uneven inflation has become across categories.

Core inflation and the shelter puzzle

Core inflation, which excludes food and energy, also showed signs of cooling, reaching its lowest annual rate in several years. However, this reading too was clouded by data gaps. Shelter inflation, which carries significant weight in the CPI, slowed markedly over the two-month reporting window, a move that many economists viewed with skepticism.

Rents and housing-related costs rarely decelerate so abruptly without a clear shift in market conditions. The unusually low increase likely reflects estimation techniques filling in missing observations rather than a sudden easing in housing costs. Given that shelter accounts for more than 40% of core inflation, even small distortions can materially affect the overall figure.

This dynamic complicates interpretation for policymakers, who rely on core measures to assess underlying inflation momentum. A misleading signal from shelter alone can tilt the entire narrative.

Political optics versus economic reality

The apparent easing in inflation quickly became a political talking point. Administration officials pointed to the headline slowdown as evidence that affordability pressures were easing, especially after high-profile public messaging focused on cost-of-living concerns. Markets initially responded positively, with equities rising and bond yields falling.

Yet for households, the lived experience of inflation remains shaped by essentials rather than aggregates. Rising food and utility bills continue to weigh on sentiment, and surveys suggest consumers remain more pessimistic than headline data would imply.

This disconnect highlights a broader challenge: inflation can slow statistically while still feeling acute. When price increases are concentrated in necessities, the political and social impact can remain severe even as macro indicators improve.

Implications for Federal Reserve policy

For the Federal Reserve, the distorted CPI report presents a dilemma. On one hand, inflation appears to be moving closer to levels consistent with price stability, and the labour market is showing signs of gradual cooling. On the other hand, the quality of the data makes it difficult to judge whether progress is genuine or exaggerated.

Federal Reserve officials have already signalled caution, indicating that recent data will be scrutinised carefully rather than taken at face value. With policy rates still elevated, the central bank is balancing the risk of cutting too soon against the risk of overtightening as inflation naturally slows.

Markets continue to price in rate cuts next year, but expectations hinge on confirmation from cleaner data in December and early 2026. Until the statistical distortions fade, policymakers are likely to rely more heavily on alternative indicators, including wages, services inflation, and the Personal Consumption Expenditures index.

Labour market signals add nuance

Separate labour market data released alongside the inflation report painted a picture of stability rather than sharp deterioration. Initial unemployment claims declined, suggesting layoffs remain contained, while continuing claims edged higher, indicating that job seekers are taking longer to find new work.

This combination points to a labour market that is cooling gradually, easing wage pressures without triggering a downturn. Such a backdrop supports the case for disinflation over time, even if the November CPI overstated the pace.

However, tepid hiring also raises concerns about income growth, which could affect consumer spending and broader economic momentum next year.

Reading through the noise

The November inflation report illustrates how fragile the signal can become when data collection breaks down. While the headline suggests progress in taming inflation, the underlying reality is more nuanced. Some price pressures are easing, others remain entrenched, and methodological distortions complicate interpretation.

For economists and policymakers, the task now is to look past a single month’s data and assess trends across multiple indicators. The true test will come as normal data collection resumes and temporary seasonal effects fade.

Until then, November’s CPI stands less as a definitive turning point and more as a reminder that in periods of disruption, statistics can tell a partial story—one that must be read with caution as the U.S. economy navigates the next phase of disinflation.

(Adapted from Reuters.com)

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