Article by Ben Casselman: “Federal Reserve policymakers have stressed that their decisions on interest rates in coming months will depend on what happens in the economic data.
Just one problem: That data may be becoming less reliable.
The Bureau of Labor Statistics last month said it was reducing its collection of data on consumer prices, and had stopped gathering data entirely in several areas. On Tuesday, the agency provided more details on the cutbacks and indicated they were more significant than previously understood.
Collecting the data that goes into the Consumer Price Index is a labor-intensive operation. Every month, a small army of government workers visits stores and other businesses across the country to check prices of eggs, underwear, haircuts and tens of thousands of other goods and services. The data collected is the basis for the inflation measures that Fed policymakers rely on when setting interest rates, and that determine cost-of-living increases in union contracts and Social Security benefits, among other uses.
In its announcement on Tuesday, the Bureau of Labor Statistics said that in addition to suspending data collection in three cities, it had reduced the amount of data it was collecting in the rest of the country by about 15 percent on average. All together, the cutbacks meant that the agency suspended collection on about 19 percent of its data in June, said Emily Liddel, an associate commissioner at the bureau.
The cuts affected data on consumer products and on rents, both crucial information for policymakers.
“The main takeaway for me is that their data collection problems were much worse than we thought,” Omair Sharif, founder of Inflation Insights, a forecasting firm, wrote in a note to clients on Wednesday.
When the government can’t collect data on prices, it has to fill in the gaps with a statistical technique called “imputation.” The more data that must be imputed, the less reliable the overall numbers become.
The bureau, which is part of the Labor Department, hasn’t provided a detailed explanation for the cuts, but has said it “makes reductions when current resources can no longer support the collection effort.” The agency recently announced it would stop publishing some data on wholesale prices, also because of resource constraints…(More)”.
