The credibility of America's key inflation indicator is facing increasingly intense scrutiny as the United States grows more reliant on estimated rather than directly collected data to compile the Consumer Price Index, raising significant questions ahead of Federal Reserve policy decisions.
On September 11, the Bureau of Labor Statistics (BLS) disclosed that the proportion of prices generated using a suboptimal estimation method called "different-cell imputation" in the August CPI report had surged to 36%, up from 32% the previous month. This figure represents not only the highest level since data recording began in 2019 but also far exceeds the 9% ratio recorded in February this year.
This method is employed when specific regional commodity prices are unavailable, substituting data from the same products in other geographic areas. It is considered a lower-precision "suboptimal option" for addressing data gaps.
The disclosure comes as the U.S. released August CPI data that largely met market expectations and reinforced market bets on imminent Federal Reserve rate cuts.
Economists believe the increased use of estimation methods undermines data accuracy. UBS inflation economist Alan Detmeister noted that while the macro-level impact of such substitutions remains unclear, a more concerning issue is that the total number of price quotes in the CPI has been declining steadily over the past decade, increasing data volatility.
In a conference call last month, he explicitly stated: "Overall, this is reducing the quality of the CPI and its ability to track actual inflation."
**Staff Losses and Political Pressure Intensify Estimation Dependence**
The Bureau of Labor Statistics' growing reliance on estimation methods is closely tied to staff losses and data collection challenges it has faced in recent years.
Reports indicate that staff numbers at the agency have continuously declined since Trump assumed the presidency. While the BLS has not disclosed specific turnover figures, advocacy groups maintaining contact with current and former employees estimate that BLS staffing has decreased by at least 20%. The Trump administration's proposed 2026 budget would further reduce the agency's resources.
Additionally, the BLS's own data collection has encountered problems. In June, the BLS stated that due to insufficient resources, it had suspended CPI sample collection in three metropolitan areas, though its analysis suggested minimal impact on overall CPI. However, by late July, the agency reported that approximately 15% of other regional sample collection had also been suspended, without explaining how this would affect inflation rates.
Omair Sharif, president of Inflation Insights LLC, noted that these two notices regarding suspended collection indicate that approximately 19% of CPI prices are being estimated, up from 5.1% at the end of 2022. "If you stop collecting data in certain regions nationwide, then the proportion of 'different-cell imputation' increases."
Concerns about BLS data quality arise amid enormous political pressure facing the agency. Following unusually large downward revisions in the July employment report, Trump dismissed the BLS director and accused her of manipulating data for political gain without evidence.
Against this backdrop of controversy, the U.S. Department of Labor's Office of Inspector General, which oversees the BLS, announced Wednesday that it is launching a review of "challenges" the agency faces regarding CPI, Producer Price Index, and employment data revisions.