After messing with the NFP, it's time to mess with US CPI inflation

On Friday Bureau of Labor Statistics released its annual revisions of the consumer price index for December, with some revisions going back to 2018. These revisions came just ahead of January's CPI, which will be released on Tuesday.

Revision of inflation data

What has actually been revised is seasonal adjustments, and thus seasonally adjusted month-to-month CPI readings, which everyone is talking about as measures of current inflation.

Adjustments for December's month-on-month readings were all positive, including: Overall CPI (CPI-U), old -0,1%; new +0,1%. Hence, "Core CPI" (excluding food and energy), old +0,3%; new +0,4″, "Services CPI", old: +0,6%; new +0,7%. In addition, the readings for October and November were revised upwards, taking away some of the "disinflation" scenario. The indices were also revised for some months going back to 2018, some months up, some down, but for October, November and December all were revised up. In magnitude, not necessarily direction, the December revisions were consistent with revisions in previous years, the BLS said.

So we want to look at the two most important adjustments when it comes to assessing how deeply inflation has penetrated the economy as a whole and what direction it might take. CPI for services was revised to +0,7% for December from November (originally 0,6%), and was also revised upwards for November and October. The core CPI was also revised upwards for October, November and December, showing much less "disinflation" in October and November and acceleration of inflation in December. The revisions also removed some jumps in 2022 and 2021.

However, it wasn't that good

Disinflation means inflation, but mitigating rather than worsening. These revisions for the last three months show that disinflation in October and November was lower than reported, and in December there was an increase in inflation.

In order to improve the accuracy and usability of the Consumer Price Index (CPI), the BLS has scheduled to update the expense weights on an annual basis using information from one calendar year. This differs from the previous method, which updated the weights with spend data every two years. US CPI for January 2023 will be calculated using 2021 consumer spending data.

As a consequence, these data may attract the attention of investors even more, and the surprise is similar to NFPwould not be surprising.