US DATA: Analysts Lament "Mess" Of A CPI Report, Revise Down PCE Tracking

Analysts have sharply downwardly revised expectations for core PCE in October and November following the CPI report. All acknowledge that the downside surprise to key aggregates was probably driven by serious methodological issues/choices that may reverse to the upside in the coming months. As such the Fed is unlikely to take the data seriously or literally when deciding whether a follow-up cut is appropriate at its January meeting, preferring to take more signal from the December report due out in mid-January.  A few selected comments:

• Morgan Stanley: "The downside surprise reflects weakness in both goods and services, but may be partly due to methodological issues. The BLS might have carried forward prices in some categories, effectively assuming 0% inflation. If these technical factors are the main source of weakness, we could see reacceleration in December...While we anticipated a seasonal drag on OER, the 0.13% m/m average pace in Oct/Nov cannot be explained by seasonals alone. Limited data and carry forward assumptions may have introduced a downward bias...we now forecast core PCE inflation increased 0.128%m/m on average in October and November...We were previously tracking core PCE at 0.28% average Oct/Nov, the 15bp downward revision is explained by both lower-than-expected core goods (-6bp), and core services (-9bp)."
• Jefferies: "We need to acknowledge that this data is a mess...Taken at face value, this report and the increase in the unemployment rate through November should increase the odds of further rate cuts in 2026. However, the lack of detail in the data and the varied treatment of certain missing data points creates a general sense of uneasiness and distrust in the data. "Clean" reports in December will be key to putting these October and November reports into the proper context."
• Nomura: "We expect missing October data and the unusual timing of November data collection drove a downward bias in CPI estimates. This is likely to lead to positive payback in December, January, and April....Weakness was broad-based, with outsized underperformance in rents, airfares, and core goods, which tend to be discounted during the holiday season...The BEA has yet to announce how it will handle the October data subjected to carry-forward imputation. However, we expect the BEA to assume zero inflation for those components, and this would likely lead core PCE inflation to slow to 0.102% m-o-m for October. We have also revised down our November core PCE tracking estimate slightly to 0.227% m-o-m (from our prior estimate of 0.252%)."
• TD: "We are skeptical regarding how much substance we can get from the November report given the well telegraphed issues around the collection of data in October and November. It seems to us that the BLS made a number of methodological judgments for October and November that resulted in a downward bias for consumer prices...Consequently, we would advise market participants to look through the November report's dovish signal, and wait for what's likely to be more reliable December numbers. We think Fed officials will probably aim to do the same."
• Wells Fargo: "Data issues aside, our belief is that inflation is slowing on trend, even if today's print overstates the slowdown. When paired with the softening in the labor market, we remain comfortable with rate cuts in March and June of next year. At that point, we believe cleaner data will give the Committee more confidence that inflation is leveling off and will soon be moving back toward 2%."