Official CPI Figures Under Fire as Measurement Quality Deteriorates

Mark Zandi, Chief Economist at Moody's Analytics, has issued a stark warning that official U.S. inflation data is "badly flawed" and significantly understates true price pressures facing American consumers. In a series of detailed analyses, Zandi contends that structural issues at the Bureau of Labor Statistics (BLS) are creating a dangerous gap between reported figures and economic reality.

The 3% Reality vs. The 2.7% Illusion

While the BLS reported headline Consumer Price Index (CPI) inflation slowing to 2.7% year-over-year in November, Moody's Analytics estimates the true figure remained stubbornly near 3.0%. This discrepancy places inflation well above the Federal Reserve's 2% target and suggests monetary policy may be operating on misleading information.

"Noise is increasingly drowning out the signal in inflation data," Zandi warned, pointing to specific measurement failures that have distorted recent readings.

Dual Crisis: Government Shutdown Fallout and Survey Timing

The problems began with October's CPI calculation, when the BLS was unable to conduct its full price survey during the federal government shutdown. In response, the agency assumed prices for most goods and services remained unchanged—an assumption Zandi called "unrealistic." Moody's reconstructed October inflation using private-sector data where available and forecasts where necessary.

November brought different but equally serious distortions. "November pricing patterns are particularly sensitive to timing," Zandi explained, noting that stronger price increases typically occur early in the month before holiday discounting intensifies. Adjusting for this timing bias, Moody's estimates core CPI inflation at approximately 3.0% year-over-year.

Structural Decline in Data Quality

Beyond these immediate issues, Zandi identified alarming structural weaknesses in CPI measurement:

  • Budget cuts and staffing shortages at BLS have sharply increased reliance on imputed prices
  • Nearly one-third of CPI components are no longer directly observed, up from roughly one-tenth earlier this year
  • This represents a fundamental deterioration in data collection methodology

Goldman Sachs economists have reportedly shared similar concerns about CPI data quality, suggesting Zandi's warnings reflect broader unease within the financial community.

Policy Implications and Economic Reality

The implications are significant for both monetary policy and financial markets. If inflation is running materially hotter than reported, the Federal Reserve may need to maintain tighter monetary conditions for longer than currently anticipated. Zandi emphasized that underlying inflation remains "uncomfortably high" with little evidence of sustained disinflation.

As the reliability of government economic data comes under scrutiny, investors and policymakers face the challenge of navigating an economic landscape where the official map may no longer match the territory.