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Market participants and policymakers will closely watch the revisions to the consumer price index due Friday morning, because of what happened last year – when CPI data was revised significantly higher, sparking concerns over the actual progress in taming inflation.
To note, the revisions from the Bureau of Labor Statistics will only affect the seasonally adjusted CPI data, and not the 12-month inflation rate.
TD Securities strategists said markets would be looking for confirmation that the move lower in core PCE inflation is not a mirage. “Such was the case last year after CPI data was revised notably higher in January 2023,” when the three-month annualized rate for core CPI (excluding food and energy) was updated to 4.3% from the initial reading of 3.1%.
The sizeable revision had caught both the market and the Federal Reserve off guard, because of which the latest updates are of importance. “My hope is that the revisions confirm the progress we have seen, but good policy is based on data and not hope,” Fed Governor Christopher Waller said last month.
So why does the BLS seasonally adjust CPI data? “Raw data often contains very strong seasonal patterns, and seasonally adjusting it can offer a clearer view of what is happening in an economic cycle,” ING economists explained.
But experts believe last year’s shock revision was an outlier. “Friday could be a bit of a non-event,” said ING economists. “That is our base case, but we have to remain open to the potential for a surprise that could meaningfully alter the market’s view on the timing of Fed policy changes.”