Inflation data shows the impact of the government shutdown

One fundamental lesson I have learned during my career as a public-facing economist is to focus on the signal rather than the noise.

The November consumer price index report is full of noise and lacks the normal breadth and depth that the good folks over at the U.S. Bureau of Labor Statistics normally provide.

It’s hard to fault them—the data was heavily compromised by the extended government shutdown, and the BLS clearly had neither the time nor the resources to issue a complete report.

As a result, it will be some time before the data presents a complete picture of the nation’s pricing environment to allow for sound policy judgments; the shutdown’s impact on the data will continue into early 2026.

In the November data, inflation eased to 2.7% overall, and to 2.6% excluding food or energy, from 3% in both categories in September, the last available report.

Because of the lack of October data, it is difficult to identify precisely why top-line inflation slowed.

If excluding housing, the data implies that the BLS assumed that rent and owners’ equivalent rent were somewhere around zero in October, which does not align with what can be plainly observed.

A measure of humility is in order here. Because of the flawed report, we lack a clear understanding of price movements over the past two months and, consequently, a clear explanation for why inflation eased.

Divergence between the top-line and core categories and the underlying detail on a year-ago basis suggests that an explanation is not possible and further inflation data is needed to support any further policy decisions.

Policy implications

On the surface, both the top-line and the core data support the Federal Reserve’s rate reduction in December and will clearly feed into calls for another 25-basis-point rate cut when the Fed meets on Jan. 26 and 27.

But because of distortions in the data collection caused by the government shutdown, we are not comfortable with another rate cut at this time; the detail in the data does not align well with the top line or the core.

The primary takeaway from the November report with respect to policy is that it makes sense to wait for more data, especially in housing and services.

The data

The year-over-year data for November showed a 5.4% drop in airfares, the only notable decline in the data reported. Growth slowed in apparel, to 0.2%, gasoline to 0.9%, and new vehicles to 0.6%.

Services, a category that traditionally accounts for greater than 60% of the index, increased by 3.2%, and services excluding energy was up by 3%.

Energy costs rose by 4.2%, fuels and utilities by 6.5%, food and beverages by 2.6%, and used cars and trucks by 3.6%.

The cost of housing increased by 3.5%, shelter by 3%, and the owners’ equivalent rent series, which the Fed closely monitors when setting policy, by 3.4%.

Medical care increased by 2.9% and transportation rose by 1.6%.