An obscure methodological change lowered a key measure of inflation in January, prompting questions about how government statistical agencies produce and report economic data.
Deep inside its monthly inflation report on Friday, the Bureau of Economic Analysis said that the cost of legal services rose 1.8 percent in January. That was an unusually large increase, but not nearly as big as the double-digit gain that some forecasters were expecting.
The reason for the divergence: The agency, which is part of the Commerce Department, had changed the source of its data on legal prices, relying on wholesale prices from the Bureau of Labor Statistics rather than the consumer price data it usually uses.
A technical tweak to such a small category — legal services account for less than 1 percent of overall consumer spending — would ordinarily draw little notice.
But in this case, the adjustment was enough to shave roughly a tenth of a percentage point off the monthly change in the core Personal Consumption Expenditures price index. That is a meaningful difference to investors, who track even tiny moves in the index for hints of when and how the Federal Reserve will next adjust interest rates. The central bank officially targets the P.C.E. index, not the better-known Consumer Price Index, when making policy decisions.
The bureau provided no public disclosure of the change. Economists learned about it only when they reached out to the agency to understand why their forecasts had been so far off.
Thomas Dail, a spokesman for the Bureau of Economic Analysis, said the agency had “not changed the methodology for estimating the quantity and prices of P.C.E. for legal services.”
But Harvey Davis, an economist at the bureau, said in an interview that the agency had made a “one-off” change to the source of the data, a decision he said was unusual but not unprecedented.
In an email sent after The New York Times published a version of this article on its website, Mr. Dail wrote that the switch in sources “is not considered a change in our methodology.”
The Bureau of Economic Analysis, unlike the Bureau of Labor Statistics and the Census Bureau, doesn’t gather most of its own data. It produces its estimates by blending data from other sources. For the price index, the agency uses data from the Consumer Price Index, which measures retail prices, and the Producer Price Index, which measures wholesale prices.
Data on legal services usually comes from the consumer index. But the Bureau of Labor Statistics, which has struggled with budget cuts and staff attrition, hasn’t been able to collect enough data in recent years to publish the legal services index consistently. It has continued to provide the data to the Bureau of Economic Analysis, but the monthly readings have been volatile.
In January, the C.P.I. for legal services jumped more than 11 percent, according to analyses of data from the Bureau of Labor Statistics conducted by private-sector forecasters.
As a result, the Bureau of Economic Analysis decided to base its estimate of legal prices in January on the producer price data, which has been less volatile. Mr. Davis said that the jump in legal services prices in the C.P.I. data — and the absence of a clear reason for such a big increase — made that the right decision.
It isn’t clear whether the change will be permanent.
“We’re continuing to evaluate,” Mr. Davis said. “If we do decide to make a methodological change, we do plan to make that clear in a technical note.”
Economists said that change in data source, on its own, might have been justifiable. But they criticized the decision to do it without notice and outside the bureau’s normal schedule for making methodological adjustments — especially at a time when President Trump has taken other steps that call into question the independence of the statistical agencies, such as firing the head of the Bureau of Labor Statistics last year.
“On its merits, you can defend the change,” said Omair Sharif, founder of Inflation Insights, a forecasting firm. “Optically, it’s just not a good look in an environment when people are worried about political interference.”
Mr. Sharif said he did not believe the change was politically motivated. But Courtney Shupert, an economist at MacroPolicy Perspectives, another forecasting firm, said such decisions undermine public confidence in the statistical system.
“It seems like we are moving to more of a vague, uncertain, cloudy data quality environment that is going to make market participants less confident in the data that we do receive,” Ms. Shupert said.
Ben Casselman is the chief economics correspondent for The Times. He has reported on the economy for nearly 20 years.
The post Change in Data Sources Led to Lower Inflation Reading appeared first on New York Times.
