US Labor Department Sows Confusion With Email on Consumer Prices

(Bloomberg) -- The US Labor Department’s statistical agency sowed confusion on Wall Street this week with an email about a key factor behind the jump in January’s consumer price index.

A Tuesday email to a group of data “super users,” seen by Bloomberg, suggested a surge in a measure of rental inflation — which left analysts puzzled — was caused by an adjustment to how subcomponents of the index are weighted. One recipient said the Bureau of Labor Statistics tried to retract it and that they were told to disregard its contents.

The pop in owners’ equivalent rent was a major factor behind the strength of the overall January CPI figure — which was published on Feb. 13 — given its outsize weight in the index. The higher-than-expected CPI numbers have been cited by Federal Reserve officials as a reason to delay widely anticipated interest-rate cuts.

Read the BLS email:

The information has implications for the path of inflation in the near term because the adjusted weights could keep readings on rents elevated through the first half of the year, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.

At issue is the relative weighting of single-family detached homes versus multifamily units in OER, the largest individual component of the CPI. It rose in January by the most since April 2023, marking a sharp reversal from a trend of moderation in recent months.

The BLS is “currently looking into this data, and we may have additional communication regarding the rent and OER data soon,” an economist at the agency told Bloomberg in an emailed statement.

A spokesperson for the Department of Labor declined to comment, referring all inquiries on the topic to BLS. Those press contacts didn’t respond to messages seeking comment.

An increase in the weighting of single-family homes within the OER measure relative to multifamily units would tend to give it a temporary boost because supply of single-family homes has been restrained, keeping prices elevated, whereas multifamily supply has surged in recent years.

The acceleration in OER puzzled analysts because the rate of increase in a similar, though smaller, CPI component known as rent of primary residence continued to decelerate in January. The two typically move up and down together, and some suggested the larger OER move should be seen as a fluke.

But if the weighting explanation proves correct, it could keep OER inflation readings elevated for the next several months, Shepherdson said in a note to clients.

“Prudence suggests” that “we should expect OER to rise at the January pace for the next five months, at which point it should revert to the rate of increase of primary rent,” he said.

(Updates with DOL response)

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