The November CPI data in the U.S. showed further cooling of inflation, but major Wall Street investment banks warned that the figures were heavily distorted by technical anomalies and statistical biases, making them unreliable indicators of actual price trends. Analysts from institutions including Barclays and Morgan Stanley argued that this "noisy" report is insufficient to prompt the Federal Reserve to alter its policy stance in the near term.
According to trading desk reports, the U.S. core CPI for November rose just 0.16% (based on a two-month change from September to November), with the year-over-year growth rate dropping to 2.6%, significantly below the market expectation of 3.0%. Data from Morgan Stanley’s Michael T. Gapen team also revealed that the average monthly increase in core CPI for October and November was only 0.08%, far below the previously anticipated 0.28%.
Despite the seemingly weak headline figures, analysts noted that the data collection window and handling of missing data artificially suppressed inflation readings. Barclays economist Pooja Sriram’s team estimated that due to price collection concentrated during the "Black Friday" sales period and issues with the calculation methodology for housing rent data, the actual core CPI reading for November may have been understated by approximately 20-25 basis points.
Given these measurement issues, Wall Street broadly agrees that the Fed is unlikely to overreact. Barclays maintains that the threshold for the Federal Open Market Committee (FOMC) to shift its policy consensus remains high, with policymakers likely to focus more on upcoming December employment and inflation data rather than this distorted report. The bank reiterated its forecast that the Fed will implement rate cuts in March and June 2026, with a January cut deemed highly improbable.
**Data Distortions and Downward Bias** The primary controversy surrounding the CPI report stems from technical disruptions in data collection and processing. Morgan Stanley bluntly described the data as "noisy," suggesting that the Bureau of Labor Statistics (BLS) may have applied a "carry forward" approach to certain missing data categories—effectively assuming 0% inflation—leading to an unexpected downward bias.
Barclays identified two key factors contributing to the distortion. First, the timing of price collection was problematic. The report noted that due to specific factors, price collection was limited to the second half of November, coinciding with Black Friday promotions. Historical data suggests that import prices during promotional periods are typically about 1% lower than in the first half of the month. Barclays estimated this alone could have understated core CPI by 10-15 basis points.
Second, missing rent data played a role. With October rent and owners' equivalent rent (OER) data unavailable, the BLS may have assumed zero growth in rent calculations. This statistical "gap-filling" distorted the two-month comparison and could continue to affect data calculations until April 2026.
**Questionable Weakness in Housing and Services** Sectoral data indicated that sharp declines in housing and services inflation were key drivers of the overall softness, but the legitimacy of this trend was questioned. Morgan Stanley reported that core services inflation fell well below expectations, primarily dragged down by unusually weak readings in primary rent and OER.
Barclays data showed rent in the report rose just 0.13%, while OER increased 0.27% (two-month change). This implies an average monthly rent increase of only 6 basis points for October and November. Analysts expressed skepticism, arguing that even accounting for cooling market rents, this figure is significantly below reasonable levels, further supporting the view of statistical downward bias.
Additionally, core services excluding housing also showed weakness. Airline fares plunged 6.6% over two months, while medical care services dropped 2.9%. Morgan Stanley noted that if this deceleration in medical care CPI persists, it could imply sustained downward pressure of over 1 basis point per month for this category until April next year.
**Policy Threshold Not Triggered** Although the inflation data appeared to justify rate cuts, Wall Street analysts cautioned investors against overinterpreting the figures. Barclays adopted a prudent stance, arguing that the report’s measurement issues prevent it from providing clear signals on inflation trends for the FOMC.
Barclays emphasized in its research that the bar for a Fed rate cut at the January 28 meeting remains high. Swing voters on the committee are likely to await December employment and inflation data, due in January, for more reliable economic signals.
Based on its assessment of "data noise," Barclays maintained its baseline forecast of two Fed rate cuts in 2026—March and June—followed by stable rates through late 2027. While Morgan Stanley lowered its short-term inflation projections, it also cautioned that if technical factors were the primary cause of the current softness, December inflation data could rebound.
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