Assessing the Reliability of November's CPI Data Amid Technical Distortions

The November 2025 Consumer Price Index (CPI) data, released in early December, reported a year-over-year inflation rate of 2.7%, below economists' expectations of 3.1% and a slowdown from September's 3.0%. While this decline might suggest easing inflationary pressures, the data's reliability is clouded by technical distortions stemming from a government shutdown in October 2025, which disrupted the Bureau of Labor Statistics' (BLS) ability to collect standard survey data according to the BLS. These distortions, compounded by the BLS's decision to carry forward September's shelter costs to fill the October gap, have raised concerns about the accuracy of the November reading. For investors, this uncertainty underscores the need for caution and strategic positioning in a volatile inflation environment.

Technical Distortions and Their Impact on CPI Interpretation

The October government shutdown left the BLS without critical data points for November's CPI report, particularly in the second half of the month when holiday sales were prevalent. New York Federal Reserve President John Williams noted that "technical factors" likely depressed the November CPI by approximately 0.1 percentage points. The absence of October data also meant that the November report lacked a full picture of trends in categories like food, energy, and shelter. For instance, the BLS's carry-forward of September's shelter costs-a method used to estimate October's figures-has been criticized for potentially understating inflation in housing, a category that accounts for nearly 40% of the CPI basket.

This methodological adjustment, while necessary to produce a report, introduces ambiguity. Shelter costs, which rose 3.6% year-over-year in November, are a key driver of core inflation (excluding food and energy), which itself slowed to 2.6% from 3.0% in September according to Reuters. However, the true trajectory of inflation may not be fully visible until December's CPI data, when the BLS can incorporate more accurate October and November readings according to Reuters.

Investor Caution: Navigating Uncertainty in a Shifting Landscape

The distortions in November's CPI data have prompted investors to adopt a more cautious stance. Institutional investors managing $30 trillion in assets are repositioning portfolios to account for inflationary risks and policy uncertainties. A survey reveals that 40% of North American investors now view a potential inflation resurgence as a key risk, reflecting growing concerns about structural factors such as labor market constraints, housing shortages, and energy bottlenecks.

Morgan Stanley advises investors to prioritize active management, focusing on companies with pricing power and diversifying into real assets like commodities, infrastructure, and precious metals to hedge against inflation according to Titan Funding. The December 2025 Federal Reserve rate cut has also reshaped investment strategies, with falling interest rates disproportionately benefiting growth stocks and capital-intensive sectors such as Real Estate Investment Trusts (REITs), Utilities, and Industrials according to Titan Funding. These sectors, which benefit from lower borrowing costs, are seen as well-positioned to capitalize on a prolonged period of monetary easing.

However, investors must also avoid overconcentration in high-flying sectors like AI or the "Magnificent 7" stocks, which have shown heightened volatility amid mixed economic signals. A disciplined approach-emphasizing regular rebalancing, diversification, and risk management-is critical to navigating the current environment according to Yahoo Finance.

Sector-Specific Impacts: Real Estate and the Shelter Cost Carry-Forward

The distortions in CPI data have had particularly pronounced effects on real estate investment strategies. Shelter costs, which rose 0.4% month-over-month in November, remain a significant contributor to inflation and household budget pressures according to TCW. The U.S. housing market, already strained by a 4.7 million unit supply deficit, faces additional challenges from the "mortgage lock-in" effect, where homeowners with low-rate mortgages are reluctant to refinance at higher rates according to TCW. This dynamic has suppressed housing turnover and exacerbated affordability issues, particularly for lower-income households.

Investors are increasingly favoring assets with structural advantages, such as specified-pool agency mortgage-backed securities (MBS) and geographically resilient properties according to TCW. Private real estate and private credit are also gaining traction as tools for diversification, given their potential to generate stable returns in a high-inflation environment according to TCW. The Opportunity Zone program, which incentivizes investments in economically distressed areas, has seen renewed interest, though its effectiveness remains debated according to TCW.

Conclusion: Strategic Positioning Amid Persistent Uncertainty

The November 2025 CPI data, while suggesting a temporary moderation in inflation, is best interpreted with caution due to technical distortions. Investors must recognize that the true inflationary trend may not emerge until the December report and beyond. In the interim, strategic positioning-rooted in active management, diversification, and sector-specific insights-will be essential to navigating a volatile environment. As Fed Chair Jerome Powell has acknowledged, CPI data may be skewed by such technical factors, reinforcing the need for a measured approach to portfolio construction.

For now, the path forward remains uncertain. But for investors willing to look beyond short-term noise, opportunities exist in sectors and assets that align with long-term structural trends.