Questions arise! The "estimated ratio" of the US CPI rises to 36%

The credibility of key inflation indicators in the United States is facing increasing scrutiny. The U.S. is becoming more reliant on estimates rather than directly collected data to compile the CPI, raising numerous questions ahead of the Federal Reserve's decision.

On September 11, the U.S. Bureau of Labor Statistics (BLS) disclosed that in the August CPI report, the price ratio generated using a suboptimal estimation method known as "different-cell imputation" had surged from 32% a month ago to 36%. This figure is not only the highest level recorded since 2019 but also significantly higher than the 9% ratio in February of this year.

This method is used to substitute data from similar products in other geographic areas when the price of a specific item cannot be obtained in a particular region. It is considered a lower-accuracy "suboptimal option" for handling data missing issues.

The disclosure comes as the U.S. releases the August CPI, which itself largely meets market expectations and reinforces market bets on an imminent interest rate cut by the Federal Reserve.

Economists believe that the increased use of estimation methods will undermine the accuracy of the data. UBS inflation economist Alan Detmeister stated that while it is currently unclear how much this substitution affects the macro level, the more important issue is that the total number of price quotes in the CPI has been declining over the past decade, which will increase data volatility.

He explicitly pointed out in a conference call last month: “Overall, this is reducing the quality of the CPI and its ability to track actual inflation.”

Staffing Losses and Political Pressure: Increased Reliance on Estimates

The BLS's growing reliance on estimation methods is closely related to the staffing losses and data collection challenges it has faced in recent years.

Reports indicate that the agency's workforce has been steadily declining since Trump took office. Although the BLS has not disclosed specific loss numbers, advocacy groups in contact with current and former employees estimate that the BLS's staff has decreased by at least 20%. The budget proposed by the Trump administration for 2026 would further cut the agency's resources.

Additionally, the BLS has encountered issues with its own data collection. In June of this year, the BLS stated that it had suspended CPI sample collection in three metropolitan areas due to insufficient resources, but its analysis suggested that this would have minimal impact on the overall CPI. However, by the end of July, the agency reported that about 15% of sample collection in other regions had also been suspended, without clarifying how this would affect the inflation rate.

Omair Sharif, president of Inflation Insights LLC, stated that these two notices regarding the suspension of collection indicate that approximately 19% of prices in the CPI are being estimated, up from 5.1% at the end of 2022. “If you stop collecting data from certain areas of the country, then the proportion of 'different-cell imputation' will increase.”

Concerns about the quality of BLS data also arise against the backdrop of significant political pressure faced by the agency. After an unusually large downward revision in the July employment report, Trump fired the BLS director and accused her of manipulating data for political gain without evidence Amid a series of controversies, the Office of Inspector General of the U.S. Department of Labor announced on Wednesday that it is initiating a review of the challenges faced by the Bureau of Labor Statistics (BLS) in revising the Consumer Price Index (CPI), Producer Price Index (PPI), and employment data