This week’s critical inflation report comes with doubts about the data

The September consumer price index report, which will be released on Friday, will attract the full attention of financial markets, even if some investors view the data with skepticism.

With the Bureau of Labor Statistics under scrutiny this year for a large backlog of data, the government shutdown gripping Washington, D.C., will raise concerns in some parts of Wall Street about whether the inflation reading will provide a complete picture.

“Skeptics like me will focus on how clean this data is,” said Vishal Khanduja, head of broad markets fixed income at Morgan Stanley Investment Management. “What adjustments were made due to the lack of full staffing? What adjustments were made before the data was reported?”

Indeed, this year the BLS faced a number of questions about its data collection methods. In August, President Donald Trump fired former BLS Commissioner Erika McEntarfer, angered by major downward revisions in nonfarm payrolls data.

Although still considered part of the “gold standard” U.S. economic data collection apparatus, the BLS has also been criticized for its strictly analog approach, which includes face-to-face visits, telephone interviews, and written response forms.

The agency now faces the additional burden of staff cuts even before the shutdown, leaving many cities sidelined from collection efforts. Now it is preparing a major inflation report at a time when much of the government is closed and sample data risks missing.

For these reasons, Khanduja thinks investors should be careful about how much emphasis they place on the CPI reading.

“The effectiveness and cleanliness of the data – there would definitely be some skepticism from my perspective, and I think the market will do the same,” he said.

silent expectations

Despite questions about the data, economists don’t expect anything dramatic from the actual numbers.

The Dow Jones consensus includes the CPI report showing annual inflation levels of 3.1% for both headline and all items, as well as the key indicator excluding food and energy. Economists predict the headline will rise 0.4%, in line with August gains, and the core will rise 0.3%.

What gives this report an even higher profile is that all other data collection and publishing was suspended during the shutdown. The reason the Labor Department is recalling BLS workers is because the CPI report is used to index Social Security cost-of-living adjustments.

So there will be no other explanation other than this, leaving investors as well as Federal Reserve policymakers blind to the data. This in itself represents a whole host of problems and another headache for agencies like the BLS.

“It’s unclear how the BLS will deal with the unprecedented lack of real-time collections as the shutdown looks likely to last into November,” Citigroup economist Veronica Clark said in a note. he said. “November data collections are also increasingly likely to be affected. We will be monitoring the release of any possible guidance on October CPI collections with the September report on Friday.”

Meanwhile, the Fed will hold a meeting next week and markets generally expect a quarter-point cut in the overnight borrowing rate, likely to be followed by another cut in December. Fed funds are currently at 4.00% to 4.25%.

However, there is serious uncertainty about what will happen in 2026 and beyond. Trump wants rates to be lowered aggressively and will likely nominate a candidate next year to replace Chairman Jerome Powell who will embrace that philosophy.

However, it will be difficult to formulate policy when there is no data certainty.

“I don’t think we can learn much from this [CPI] “There’s data that we’re not seeing right now,” Morgan Stanley chief investment officer Mike Wilson said on CNBC on Tuesday. “I think that will give the Fed protection to do what I think they need to do, which is to lower interest rates in a more meaningful way. In my view,” he said. [is] “The risk of the Fed not receiving data that would allow it to make a more meaningful interest rate cut.”