CPI data provided 'downwardly biased view of inflation,' says EY-Parthenon's Daco

Kelly Evans (Anchor) 00:00.070

let's bring in greg doc that's

Steve Liesman (Senior Economics Reporter) 00:01.590

a good idea

Kelly Evans (Anchor) 00:02.270

he thinks this report wasn't just noisy and full of gaps but that it shows a downwardly biased view of inflation greg am i saying that correctly what do you see here that jumps out to you

Gregory Daco (Chief Economist) 00:13.230

yeah that's absolutely right kelly and i think steve put it well it was full of gaps for sure it was very noisy it was messy but there was a downward bias and this downward bias to clarify what steve was mentioning is due to the BLS methodology when it comes to filling in cells

Gregory Daco (Chief Economist) 00:29.870

for which it doesn't have data and that's called the carry forward methodology simply put if the the BLS does not have a data point for the month of october it uses the september data point and that imparts downward biased to the inflation trajectory just right there

Steve Liesman (Senior Economics Reporter) 00:48.040

i'm going to stop you because now you've opened the can of worms for me to actually ask you this question OK here's the note from my friend krishna guide evercore isi it says it looks as if the BLS put in a zero inflation in multiple categories for the roughly one third of

Steve Liesman (Senior Economics Reporter) 01:04.560

cities that are not surveyed each month biasing the reed lower you confirming that greg

Gregory Daco (Chief Economist) 01:11.550

i think that's the carry forward methodology the BLS was not entirely here yesterday they released an FAQ on what was going to happen with the data but we are seeing that across a lot of the measures that were surveyed very low inflation numbers for the month of october which

Gregory Daco (Chief Economist) 01:27.310

imparts that downward bias to the inflation dynamics i think that's very important to keep in mind because it's not just a story for october and november this potentially lowers the inflation trajectory into twenty twenty six and will mean that through the mid part of twenty

Gregory Daco (Chief Economist) 01:43.020

twenty six we're going to see this downward bias coming from shelter costs disinflating faster than what was previously the case so i think we have to be very careful not just with these two reports but the reports that will come out over the next few months will also have this

Gregory Daco (Chief Economist) 01:58.820

downward bias and this is a real risk in terms of reading properly where inflation is headed for what it's

Kelly Evans (Anchor) 02:03.780

worth on a sub stack barry knapp has a different point of view where he thinks the core goods price was point oh six point oh three in other words are these do these are these literal zeros or were they actually picking up numbers that were very close to zero in their yeah

Steve Liesman (Senior Economics Reporter) 02:17.340

i mean i think we're gonna get a lot of people clicking away if we go chew down into the weeds of this report i think the way to think about it is well greg tell me if i'm wrong about this i think that this is probably a report where it probably came in at or around the estimate

Steve Liesman (Senior Economics Reporter) 02:34.460

of three percent there's no reason to think that prices have accelerated and not a whole lot of reason to think they're falling except over time the oer the homeowners rent will offer a downward bias to the numbers

Kelly Evans (Anchor) 02:48.060

that's one reason why i wanted to quickly raise this with both of you even though it's a mega mega topic we have diane swonk made this tweet earlier that caught my eye because lurking behind all of this is this larger question about a productivity boom anyway diane points out

Kelly Evans (Anchor) 03:01.300

based on some of the data we're getting and the way inflation is looking the GDP report could have gains crossing four percent stronger than the three point eight in the second quarter she says that's stunning AI and the wealth that generates still posting big gains along with

Kelly Evans (Anchor) 03:15.220

the narrowing trade deficit so in other words she said by the way this occurred with essentially flat employment since april productivity helps to explain that her she's just about to explode