HeadlinesBriefing favicon HeadlinesBriefing.com

Inflation Data Change Sparks Fed Policy Concerns

New York Times Business •
×

A methodological change in how the government calculates inflation contributed to a better-than-expected January reading, shaving roughly a tenth of a percentage point off the core Personal Consumption Expenditures index. The Bureau of Economic Analysis switched its data source for legal services prices, using wholesale rather than consumer price data. This adjustment came as forecasters had predicted double-digit gains in legal services costs.

Legal services represent less than 1% of consumer spending, making the change seemingly minor. However, even small moves in the P.C.E. index matter greatly to investors and the Federal Reserve, which uses it as its official inflation gauge when setting interest rates. The agency provided no public disclosure of the change, leaving economists to discover it only after their forecasts proved inaccurate.

The Bureau of Labor Statistics, which typically supplies the data, has struggled with budget cuts and staff attrition, leading to inconsistent collection of legal services price data. In January, the C.P.I. for legal services jumped more than 11%, prompting the Bureau of Economic Analysis to rely on the less volatile producer price data instead. The decision, while potentially justifiable on its merits, drew criticism for its lack of transparency during a period of heightened concern about political interference in government statistics.