Inflation Revisions: Preparing for Potential Changes

Investors are eagerly anticipating the release of Friday's updated data on inflation revisions. Although such updates usually go unnoticed, last year they caused a stir in the financial world. The Bureau of Labor Statistics will be conducting its routine annual recalculation of previous consumer-price index readings from January 2019 to December 2023, with the purpose of updating seasonal factors.

The upcoming revisions for 2023 have sparked speculation in various financial circles and even among high-ranking officials at the Federal Reserve. Fed Gov. Christopher Waller recently emphasized the importance of closely monitoring these updates, as they could potentially alter the inflation landscape.

Looking back at last year's revisions, the BLS revealed that inflation in the final two months of 2022 hadn't slowed down as much as initially believed. This reevaluation raised concerns, and now there is a worry that something similar could occur this Friday. These revisions come at a time when Federal Reserve officials are striving for greater confidence in the trajectory of inflation, aiming for it to steadily decrease toward their 2% target.

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

An Analysis of Inflation and Upcoming Market Trends

U.S. economist Michael Reid from RBC Capital Markets in New York expects some moderate upside revisions to the latter months of 2023. The monthly CPI rate experienced a 0.3% rise in December and a 0.1% rise in November last year. Reid emphasized that the major difference between the current time and the same period last year is the elevated levels of inflation in 2022. He mentioned that the revisions for November and December of that year were considerably more pronounced. However, he also mentioned that Friday's data is unlikely to significantly change the year-over-year pace of inflation in the larger context. Reid highlights that his preferred measure, PCE, demonstrates much more improvement in terms of inflation.

In anticipation of Friday's revisions and Tuesday's CPI reading for January, the financial markets appeared to be generally stable. Stocks DJIA SPX COMP showed mixed results in afternoon trading on Thursday, while 2- BX:TMUBMUSD02Y through 30-year Treasury yields BX:TMUBMUSD30Y remained slightly higher following a solid government auction.

Over the past month, various experts have expressed concerns about inflation risks. Economist Tiffany Wilding from California-based bond fund Pimco, James Solloway, chief market strategist and senior portfolio manager at Pennsylvania-based SEI SEIC, and Brent Schutte, chief investment officer of Milwaukee-based Northwestern Mutual Wealth Management Co., are among those who have voiced these concerns.