Cracks in the CPI: How November 2025 Data Integrity Issues Are Reshaping Inflation-Linked Markets and Fed Policy

The November 2025 Consumer Price Index (CPI) report has ignited a firestorm of skepticism among economists, investors, and policymakers. A 43-day federal government shutdown disrupted data collection, forcing the Bureau of Labor Statistics (BLS) to resort to methodological workarounds-such as carrying forward September data for critical categories like Owners' Equivalent Rent (OER)-to produce the November report according to BLS documentation. This has cast a long shadow over the reliability of the 2.7% year-on-year inflation figure, which is now viewed as a distorted snapshot of economic reality. For investors in inflation-linked assets like Treasury Inflation-Protected Securities (TIPS) and inflation swaps, and for the Federal Reserve grappling with policy decisions, the implications are profound.

The Methodological Quagmire: A Recipe for Uncertainty

The BLS's reliance on approximated data and historical imputation methods has created a "Swiss cheese" CPI report, as Bloomberg aptly described. For instance, October CPI data was entirely canceled, and November's calculations effectively compared November 2025 prices to September 2025 values, bypassing October entirely.

This approach led to anomalies such as a 0.06% average increase in primary rents over two months-a figure that defies real-world trends in housing markets.

The OER component, which constitutes 26% of the CPI, was particularly compromised. By carrying forward April 2025 data for October 2025, the BLS assumed no price changes occurred during a critical period of economic volatility. This methodological shortcut has not only skewed inflation metrics but also raised concerns about the long-term integrity of the CPI. As the BLS warned, the impact of missing October data could ripple into the April 2026 rent and OER indexes, further distorting the inflation narrative.

Inflation-Linked Assets in the Crosshairs

The uncertainty surrounding CPI data has thrown inflation-linked assets into disarray. TIPS, which adjust principal based on CPI figures, now face a credibility crisis. For example, the July 2025 CPI data revealed persistent inflationary pressures in services and goods despite a modest headline increase. This disconnect between headline and underlying trends has led to divergent valuations between TIPS and inflation swaps, with the former outperforming the latter in January 2026 due to synthetic CPI fallback mechanisms. Inflation swaps, which derive payouts from CPI data, are equally vulnerable. The lack of a reliable October CPI report forced traders to rely on historical data proxies, creating valuation discrepancies. This has widened the inflation basis-the persistent 30-basis-point gap between inflation swap rates and TIPS breakeven rates-complicating hedging strategies for investors.

Fed Policy in a Fog of Doubt

The Federal Reserve, which primarily tracks the Personal Consumption Expenditures (PCE) index, has not been spared from the fallout. Key reports were delayed or canceled during the shutdown, leaving policymakers with an incomplete picture of inflation trends. While the November CPI's 2.7% figure suggested a potential easing of inflation, Fed Chair Jerome Powell has urged skepticism, emphasizing that December's report will provide a clearer trajectory.

The Fed's December rate cut, partly motivated by the desire to maintain liquidity, underscores the central bank's cautious stance. However, with core inflation still above the 2% target and persistent inflation expectations (3.2% at the five-year horizon), further rate cuts remain conditional on clearer data. This uncertainty has kept the CME FedWatch tool pricing in a 73% chance of a pause in rate hikes for January reflecting the market's wariness, reflecting the market's wariness of distorted signals.

Investor Strategies: Navigating the CPI Quagmire

For investors, the November 2025 CPI debacle highlights the need for diversified risk management. Defensive equities and low-volatility strategies can cushion portfolios against macroeconomic swings, while inflation-linked bonds, gold, and alternative assets like infrastructure offer hedges against persistent inflation. Short-dated bonds, with their reduced duration risk, also provide a safer harbor in an environment of data uncertainty.

Moreover, the AI and technology sectors remain compelling, as they drive productivity gains that could counteract inflationary pressures in the long term. However, investors must remain vigilant about the Fed's data-dependent approach and the potential for further CPI revisions. As one expert noted, "The true trajectory of inflation remains obscured by the technical challenges of the data collection process."

Conclusion: A Call for Caution

The November 2025 CPI report is a cautionary tale about the fragility of economic data in times of institutional disruption. For investors, the lesson is clear: rely not solely on headline figures but on a mosaic of indicators-including PCE, services inflation, and real-time price trends-to navigate the fog of uncertainty. For the Fed, the challenge lies in balancing policy decisions with the recognition that data integrity is as critical as data itself. In a world where inflation-linked assets and central bank credibility hang in the balance, the stakes have never been higher.