Email ‘error’ in inflation data raises questions about what’s being shared
One afternoon in late February, a Bureau of Labor Statistics employee sent an email about an unclear detail in the way the government calculates inflation — setting off an unlikely firestorm.
Economists on Wall Street had wondered for two weeks about an unexpected rise in housing costs in the consumer price index. Several people had contacted the Bureau of Labor Statistics, which produces the figures, to inquire. Now an economist within the agency thought he had solved the mystery.
In an email addressed to ‘Super Users’, the economist explained a technical change in the calculation of housing figures. He then added, deviating from the bureaucratic language typically used by statistical agencies: “All of you who are looking for the source of the discrepancies have found it.”
For the inflation-obsessed who received the email—and for other forecasters who quickly heard about it—the implication was clear: January’s home price rise may not have been a fluke, but rather the result of a shift in methodology that tracks inflation. could keep high. longer than economists and Federal Reserve officials expected. That, in turn, could make the Fed more cautious about cutting rates.
“I almost fell off my chair when I saw that,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, a forecasting firm.
Large portions of Wall Street trading securities are tied to inflation or interest rates. But the universe of people who received the email was small: about 50 people, the Bureau of Labor Statistics later said.
In the minutes after it came out, analysts from investment banks, hedge funds and other asset managers rushed to get their hands on a copy and figure out how to trade on it.
“It had an immediate impact – people were wondering: what is this information and how can I get my hands on it?” says Tim Duy, chief economist at SGH Macro Advisors, an advisor to investment firms.
About an hour and a half after the email was sent, the Bureau of Labor Statistics sent a follow-up message that confused things even more. “Ignore the email below,” it said. “We are currently investigating this data and we will have additional communication regarding the housing data soon.”
For investors and government watchdogs, the episode raised several questions: Did the government share sensitive information with a secret list of “super users”? How did people get on that list? And was the information shared accurate?
The Bureau of Labor Statistics denied in a series of statements that a list of “super users” existed or that the government routinely shared information outside official channels. Rather, a spokeswoman said, the economist who sent the email — a longtime but relatively low-ranking employee in the agency’s consumer pricing division — had acted on his own after receiving several questions on the subject. That, she added, was a “mistake.”
But when every inflation data point is put under a microscope, even subtle details can move markets. That means that when a statistical agency works with private sector economists and analysts – long a routine practice – there is a risk that they will get an edge in forecasting and betting.
“It has put the BLS in a very difficult position because everyone is very sensitive these days about what the Fed is going to do,” said Maurine Haver, president of Haver Analytics, an economic data provider.
Emily Liddel, associate commissioner at the Bureau of Labor Statistics, said the agency is trying to respond to users and answer technical questions.
“We offer employees the opportunity to speak directly to interested parties to match the experts with the people trying to understand the data,” she says.
The email controversy, Ms. Liddel said, “has caused no small amount of embarrassment” and will lead to more training and a review of information disclosure policies.
“There are agency-wide efforts to reemphasize the importance of ensuring everyone has equal access to the data,” she said.
It is unclear how the February emails affected the markets, in part because traders received the news at different times when the messages were forwarded. The yield on two-year government bondswhich is very much in line with the Fed’s expectations, rose in the hours after the email and reversed not long after the subsequent email – moves that would have made sense in response to the emails, but which are flawed in terms of timing did not correspond perfectly.
To add to the confusion, the first email was, if not wrong, at least misleading.
In response to the email episode, the Bureau of Labor Statistics held an online seminar explaining how it calculates housing inflation and the effect of methodological changes. According to that presentation, the original email was right about the technical change, which caused single-family homes to count more in inflation calculations in January than in December.
But while the email suggested the adjustment was a major reason for the unexpectedly high inflation rates, the online presentation showed the effect was minimal. And indeed, when the agency released inflation data for February, it showed that home price growth had slowed. After all, January’s data was largely a fluke.