Could CPI revisions dampen optimism about inflation?

The Federal Reserve looks in no hurry to cut interest rate very soon. Last year’s revisions to the consumer price index (CPI) raised doubts on inflation progress, prompting Fed officials to seek more evidence before committing to interest-rate cuts.

The Bureau of Labor Statistics regularly adjusts monthly CPI data to remove seasonal factors, allowing for meaningful comparisons across months within the same year.

Initial readings showed a 3.1% increase in consumer prices excluding food and energy in the final three months of 2022, down from 8% in the same period of 2021. After the revisions, the 3.1% was recalculated at a higher 4.3%, and core CPI for January came in at an annualized 5.1%.

The tone around inflation and the outlook for rates shifted. Bank of America economists do not expect a repeat of last year’s revisions and do not think the revisions will affect the outlook for monetary policy this time around.

Morgan Stanley economists note that last year’s CPI revision was an outlier and that the chances of seeing another outlier in the upcoming revisions are low.