November Inflation Falls to 2.7% But Economists Question Government Shutdown's Impact

Unexpected Drop Defies Forecasts

Inflation in November fell to 2.7%, down from 3% in September , according to the Bureau of Labor Statistics report released Thursday. Economists had expected the annual inflation rate to rise to 3.1% , making the decline a significant surprise that could influence Federal Reserve policy decisions heading into 2026.

The closely watched core CPI, excluding food and energy, also cooled sharply, dropping from 3% in September to 2.6%, the lowest annual rate since March 2021 . This marked a notable reversal from the gradual uptick in inflation that had been occurring since April, when it stood at 2.3%.

The report provided welcome news for consumers dealing with persistent price pressures, though the circumstances surrounding the data collection have raised significant questions about its reliability.

Government Shutdown Creates Data Uncertainty

Thursday's release was the first batch of inflation data to be published since the historically long government shutdown ended in mid-November . The BLS didn't collect inflation data for October and was only able to gather data for roughly half of November due to the shutdown, which ran from Oct. 1 to Nov. 12 .

Wells Fargo economists quipped: "Take it with the entire salt shaker," while Stephanie Roth, chief economist at Wolfe Research, told CNN: "I don't take it at face value. It seems like the government shutdown had a big impact."

Since the government's data sample occurred from the middle to end of November, prices for goods may have inadvertently captured more Black Friday sales and looked artificially low . Goldman Sachs economists estimated that late collection could exert as much as a 10-15 basis point drag on the overall November core CPI, with any drag on November prices corresponding to a commensurate boost to December inflation .

Federal Reserve Implications

Federal Reserve Chair Jerome Powell said the central bank would need to look at the latest data with a "somewhat skeptical eye" because of the abnormal way the data was collected . At its final meeting of 2025 last week, the Fed implemented a third straight .25% cut to its benchmark federal funds rate, bringing the interest range down to 3.5% to 3.75%, the lowest in three years .

Stephen Kates, financial analyst at Bankrate, wrote that "This report vindicated the Federal Reserve's dovish stance at its most recent meeting and could raise the likelihood of another rate cut in January" . However, many economists remain cautious about drawing firm conclusions from this data.

The December CPI inflation report is due ahead of the U.S. central bank's next policy meeting in January. The monetary body will also see a slew of other data before then, including another inflation reading via the Personal Consumption Expenditures inflation index, the Fed's preferred metric .

Looking Ahead

December's inflation data is expected to come out in mid-January. The next batch of data is likely to give a fuller picture of changing prices, because the data will have been collected normally . Even the December CPI will not be completely unaffected by the government shutdown, and some level bias could continue in the CPI until the October housing sample is revisited in the April CPI that is published in May .

Heather Long, chief economist at Navy Federal Credit Union, wrote: "Inflation did not suddenly improve a lot between September and November. Anyone who has been to the grocery store or paid a utility bill knows this." This sentiment reflects broader skepticism about whether the November reading truly represents underlying inflation trends.

The December report will be crucial for determining whether November's decline represents a genuine cooling in price pressures or simply reflects the data collection challenges created by the government shutdown. Until then, policymakers and markets will need to navigate with incomplete information about one of the economy's most critical indicators.