Investors see risk that inflation was hotter than reported for the end of 2023

Inflation revisions don’t generally make waves. But they did last year and it’s for this reason that investors are preparing for what Friday’s updated data might show.

On Friday, the Bureau of Labor Statistics will release a routine annual recalculation of previous consumer-price index readings for the period between January 2019 and December 2023, to update seasonal factors.

In some corners of the financial market and even within the highest rungs of the Federal Reserve system, there’s anticipation over what 2023’s revisions will look like. Fed Gov. Christopher Waller indicated as much three weeks ago, when he said he would be watching this round of updates closely because of the potential for it to change the picture on inflation.

Read: Is an inflation shock coming? Wall Street is on guard.

At about this same time last year, BLS released revisions to 2022 CPI readings which showed that inflation hadn’t slowed in the final two months of that year as much as initially thought.

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Revisions to CPI readings, released in February 2023, showed upward revisions to the final two months of 2022.

Haver Analytics, Bureau of Labor Statics, RBC Capital Markets

The concern now is that something similar could happen again on Friday, during a time when Federal Reserve officials have expressed their need for more confidence that inflation is on a sustainable downward path toward their 2% target.

“If anything, we would expect some moderate upside revisions to the latter months of 2023,” said U.S. economist Michael Reid of RBC Capital Markets in New York. The monthly CPI rate rose 0.3% for last December and by 0.1% in November.

The difference between now and this same time last year “is that we were at much more elevated levels in inflation” during 2022, he said via phone on Thursday. The revisions that came in for November and December of that year were “more pronounced.”

Friday’s data isn’t likely to change the year-over-year pace of inflation “in the grand scheme of things,” Reid said. “For me and the Fed, the preferred measure is PCE, which is showing much more improvement on inflation.”
Financial markets appeared to be mostly steady in the run-up to Friday’s revisions and next Tuesday’s CPI reading for January. Stocks


were mixed in afternoon trading on Thursday, while 2-
through 30-year Treasury yields
remained slightly higher after another solid government auction.

Economist Tiffany Wilding of California-based bond fund Pimco; James Solloway, chief market strategist and senior portfolio manager at Pennsylvania-based SEI
; and  Brent Schutte, chief investment officer of Milwaukee-based Northwestern Mutual Wealth Management Co., are some of the people who have expressed lingering concerns about inflation risks within the past month.

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