Email ‘Mistake’ on Inflation Data Prompts Questions on What Is Shared

One afternoon in late February, an employee at the Bureau of Labor Statistics sent an email about an obscure detail in the way the government calculates inflation — and set off an unlikely firestorm.

Economists on Wall Street had spent two weeks puzzling over an unexpected jump in housing costs in the Consumer Price Index. Several had contacted the Bureau of Labor Statistics, which produces the numbers, to inquire. Now, an economist inside the bureau thought he had solved the mystery.

In an email addressed to “Super Users,” the economist explained a technical change in the calculation of the housing figures. Then, departing from the bureaucratic language typically used by statistical agencies, he added, “All of you searching for the source of the divergence have found it.”

To the inflation obsessives who received the email — and other forecasters who quickly heard about it — the implication was clear: The pop in housing prices in January might have been not a fluke but rather a result of a shift in methodology that could keep inflation elevated longer than economists and Federal Reserve officials had expected. That could, in turn, make the Fed more cautious about cutting interest rates.

“I nearly fell off my chair when I saw that,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, a forecasting firm.

Huge swaths of Wall Street trade securities are tied to inflation or rates. But the universe of people receiving the email was tiny — about 50 people, the Bureau of Labor Statistics later said.

In the minutes after it came out, analysts at investment banks, hedge funds and other asset managers scrambled to get a copy and to figure out how to trade on it.

“It had an immediate impact — people were asking, what is this information, and how can I get my hands on it?” said Tim Duy, chief economist at SGH Macro Advisors, a consultant for investment firms.

About an hour and a half after the email went out, the Bureau of Labor Statistics sent a follow-up that further confused things. “Please disregard the email below,” it read. “We are currently looking into this data, and we will have additional communication” regarding the housing data “soon.”

For investors and government watchdogs, the episode raised several questions: Was the government sharing sensitive information with a secret list of “super users”? How did people get on that list? And was the shared information accurate?

The Bureau of Labor Statistics, in a series of statements, denied that there was a list of “super users” 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 bureau’s consumer price division — had acted on his own after getting several inquiries about the topic. That, she added, was a “mistake.”

But when every inflation data point is under a microscope, even subtle details can move markets. That means that when a statistical agency interacts with private-sector economists and analysts — long a routine practice — it risks giving them a leg up in forecasting and betting.

“It has put the B.L.S. in a very awkward position because everyone is very, 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, an associate commissioner at the Bureau of Labor Statistics, said the agency tries to be responsive to users and to answer technical questions.

“We allow employees to speak directly with interested parties in order to match up the experts with the people who are trying to understand the data,” she said.

The email controversy, Ms. Liddel said, “caused no small amount of embarrassment” and will lead to more training and a review of policies on information disclosure.

“There are bureauwide efforts to re-emphasize the importance of making sure that everyone has equitable access to the data,” she said.

It is unclear how the February emails affected markets, in part because traders got the news at different times as the messages were forwarded. The two-year Treasury yield, which is very responsive to Fed expectations, rose in the hours after the email and reversed not long after the follow-up — moves that would have made sense in response to the emails but did not perfectly line up with them in timing.

Adding to the confusion: The initial email was, if not wrong, at least misleading.

Responding 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 implied that the tweak was a major reason for the unexpectedly hot inflation reading, the online presentation showed that the effect was minimal. Sure enough, when the bureau released inflation data for February, it showed that the jump in house prices had moderated. The January data was mostly a fluke after all.

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