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US inflation unexpectedly fell to 2.7 per cent in November, according to official figures analysts said were distorted by federal statistics agencies’ inability to collect data during the recent government shutdown.
Thursday’s annual consumer price index number from the Bureau of Labor Statistics was well below expectations of a 3.1 per cent increase among economists polled by Bloomberg, and September’s rise of 3 per cent.
Core inflation, which strips out volatile food and energy prices, rose 2.6 per cent, below expectations of 3 per cent.
The report provides a glimpse into the state of the US economy after a record-length government shutdown halted data collection and caused many official releases to be postponed. The BLS scrapped its October CPI report owing to the shutdown.
Michael Hanson, a senior economist at Wall Street bank JPMorgan, said the lower than expected figures “suggest that the BLS may have held fixed a number of prices it was not able to collect in October, which likely means a material downward bias in the current numbers that will be reversed in coming months as full price collection resumes”.
The BLS noted that “for a few indexes, BLS uses nonsurvey data sources instead of survey data to make the index calculations”.
Short-term government debt increased slightly in price following the report, pushing yields lower. The two-year Treasury yield briefly fell to a two-month low of 3.43 per cent. Futures tracking the S&P 500 were up 0.9 per cent.
Inflation had remained stubbornly elevated in recent months, providing a political headache for President Donald Trump as voters grow frustrated with a worsening cost-of-living crunch.
Thursday’s data release comes after the Fed voted last week to cut rates to a three-year low following a divisive meeting in which policymakers debated whether to prioritise risks to inflation or the labour market in determining the path forward on monetary policy.
Some members of the rate-setting Federal Open Market Committee have warned that cutting rates too quickly risks exacerbating inflation, while others argue reductions are necessary to support a flagging labour market.
Separate data released by the BLS this week showed the US unemployment rate ticked up to a four-year high in November.
Three FOMC members dissented from last week’s decision, which reduced borrowing costs by 0.25 percentage points for the third time this year, leaving them within a range of 3.5 to 3.75 per cent.
Kansas City Fed chief Jeff Schmid and Chicago Fed head Austan Goolsbee warned against complacency over inflation levels as they called for rates to be held steady.
Fed governor Stephen Miran, a Trump ally, wanted a more substantial cut of 0.5 percentage points. He said this week that “phantom inflation” was distorting the US central bank’s decision-making and argued the underlying rate was much lower.
The president has piled pressure on the Fed to lower borrowing costs more quickly and repeatedly lashed out at chair Jay Powell, calling him a “numbskull” and “moron”.
Trump is expected to name a replacement for Powell, whose term ends in May, in the coming weeks.
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