Annual Inflation Rate Missing From CPI: How to Estimate It

Your landlord sends a renewal letter that says rent will rise "by the annual change in the CPI." You go looking for that number, and this month the government did not print it. The annual inflation rate is missing from the October CPI report, and that blank space touches leases, raises, contracts and the Fed's next move.

This is not a glitch you can wait out. The Bureau of Labor Statistics never collected prices in October of last year because the government was shut down, so there is no year-ago number to compare against. The data that does exist says prices rose 0.4% in a single month, faster than forecasters expected.

Below you will find the official numbers, the method BLS itself suggests for filling the gap, a worked estimate you can repeat at home, and what the result means for your rent, your paycheck and your borrowing costs before the Fed meets on December 9.

What the October CPI Report Actually Said

The Bureau of Labor Statistics October CPI release gave the monthly numbers as usual. The all-items index rose 0.4% in October after a 0.6% jump in September. Core prices, which strip out food and energy, rose 0.3%. That matches August and September exactly.

The spread across categories shows where your money went:

• Food: up 0.5%, after no change in September. Groceries rose 0.4% and restaurant meals rose 0.5%.
• Energy: up 0.7%, after a 5.2% surge in September. Electricity rose 0.9%.
• Shelter: up 0.3%, a little slower than September's 0.4%.
• Car insurance: up 0.7% in one month.
• Used cars: down 1.2%, one of the few categories that fell.

Then comes the blank. BLS states plainly that it "cannot publish 12-month percent changes for October" for indexes where the year-ago data are missing. That covers the headline number and the core number, the two figures most people, and most news alerts, use as "the inflation rate."

Why the Annual Inflation Rate Is Missing

An annual rate is simple division. You take this October's index and compare it with last October's. No October index from last year means no division.

The shutdown ran from October 1 to November 12 of last year, 43 days in all. BLS price collectors did not visit stores or record prices during that stretch, and the agency has said there is no way to go back and collect prices after the fact. A shirt's October price cannot be reconstructed from a receipt nobody kept.

A few series survived. Gasoline, new vehicles and used cars draw on data BLS buys from outside sources, and the agency acquired those numbers retroactively. So the release does show one striking annual figure: gasoline prices were up 37.4% from a year earlier, before seasonal adjustment. New vehicles were up 0.7% and used cars were down 3.3%.

The gap is a one-time problem. BLS has said the missing month will not affect 12-month comparisons going forward, because November of last year was collected normally. When the November report lands on December 10, the annual rate returns.

How to Estimate the Annual Inflation Rate Yourself

BLS publishes a fact sheet on approximating missing CPI data. Its method is a geometric mean: multiply the index values for the month before and the month after the gap, then take the square root. The agency is clear that the result "cannot be interpreted as official CPI series." It is still the method most contracts and economists will reach for.

The worked example

Here are the actual unadjusted index values from the BLS database, the same series most contracts use:

1. September of last year: 324.800
2. November of last year: 324.122
3. Estimated October of last year: the square root of 324.800 times 324.122, which is 324.461
4. This October: 337.511
5. Estimated annual change: 337.511 divided by 324.461, minus 1, which is about 4.0%

For comparison, September's official annual rate works out to 3.7% from the same table. So inflation did not cool in October. It sped up.

Economists surveyed by Reuters before the release landed on roughly 3.9% using a similar shortcut, and the gap between 3.9% and 4.0% is just rounding and method. Core inflation, run through the same steps, comes to about 2.8%. If you want to see how a 4% rate eats into savings over several years, plug it into our inflation calculator.

Three methods, three answers

Different methods give slightly different results, and that matters when money changes hands:

• Geometric mean of September and November: about 4.0%
• Compare with November of last year (an 11-month change): about 4.1%
• Compare with September of last year (a 13-month change): about 3.9%

None of these is wrong. None is official either.

Where the Gap Hits Your Wallet

Most people never look up a CPI index. You feel it through other people's formulas. A few of those formulas point at October.

Leases and contracts with a CPI escalator

Some commercial leases, apartment leases, union contracts and service agreements say a payment rises by "the 12-month change in the CPI" for a named month, and October is a common one. BLS notes that escalation agreements typically use unadjusted data, and its fact sheet says the approximation should be used only "if all parties agree."

Here is what the choice costs on a $1,800 monthly rent:

• At 4.0% (geometric mean), rent rises $72 to $1,872.
• At 4.1% (November base), rent rises about $74 to $1,874.
• At 3.7% (using September's official rate instead), rent rises about $67 to $1,867.

The spread is roughly $7 a month, or about $86 over a year. Small for one tenant. On a commercial lease at $20,000 a month, the same spread is close to $1,000 a year. If your contract names the October CPI, ask in writing which method is being used before you sign the renewal.

Wages and raises

Some union contracts and pension plans tie pay to the CPI. Even if yours does not, a 4% inflation rate is the number to hold your next raise against. On a $60,000 salary, a 3% raise brings you to $61,800. Keeping pace with 4% inflation would take $62,400, so you would end the year about $600 behind in buying power.

What is not affected

Social Security's cost-of-living adjustment is built from July through September prices, so the October gap does not touch it. The Fed's preferred gauge, the PCE price index from the Bureau of Economic Analysis, is calculated differently and is also unaffected. And remember that the headline number is an average. Your personal inflation rate depends on whether you drive a lot, rent or own, and how much you spend on food.

What It Means for the Fed's December Decision

The October CPI report matters most because of timing. The Fed meets on December 8 and 9, and the November CPI comes out the day after. So October is the last full inflation report officials will see before they vote.

The Federal Reserve's October 28 statement held the federal funds target range at 3.75% to 4%, following a quarter-point hike in September. It said "Inflation remains elevated." Two officials, Lisa Cook and Beth Hammack, dissented because they wanted another quarter-point increase right away.

Three straight months of 0.3% core inflation is the pattern hawks worry about. Compounded over a year, 0.3% a month comes to roughly 3.7%, far from the Fed's 2% goal. Futures markets were pricing a strong chance of a December hike after the jobs report showed 165,000 new positions in October.

What a December hike would cost you

Credit card rates move almost in lockstep with the Fed. A quarter-point hike on a $6,000 balance adds about $15 a year in interest, and that cost stacks with each hike. Our breakdown of what a rate hike costs your credit card walks through larger balances. Variable-rate loans, home equity lines and adjustable mortgages follow the same path. On the other side, savings account and CD yields tend to rise too.

So what should you do now? Pay down variable-rate debt before December 9 if you can, and if you hold cash, check that your savings rate is keeping up with a 4% world.

Frequently Asked Questions

What is the annual inflation rate for October?

BLS did not publish one. Using the agency's suggested method of averaging the September and November index values from a year earlier, the estimate is about 4.0%, compared with 3.7% in September. Economists surveyed beforehand expected about 3.9%.

Why is there no October CPI annual number?

The government shutdown that ran from October 1 to November 12 of last year stopped BLS from collecting prices that month. Without a year-ago index, the 12-month change cannot be calculated for most categories. Only a few series that use purchased data, such as gasoline, have annual figures.

Will the missing CPI data affect future inflation reports?

No. BLS has said the gap will not affect 12-month changes in future months. The November report, due December 10, will include a normal annual inflation rate because November of last year was collected.

How do I calculate a rent increase tied to the October CPI?

Check your lease for the exact index named, then agree in writing with the other party on a substitute method. The BLS suggestion is to multiply the September and November index values, take the square root, and use the result as last October's value.

Will the Fed raise interest rates in December?

Nobody knows until the vote on December 9. Two officials already voted for a hike in October, core inflation has run at 0.3% for three months, and markets were pricing a strong chance of a quarter-point increase.

The Number Is Missing, the Pressure Is Not

The October CPI report left a hole where the headline should be, but the monthly data underneath it is clear. Prices rose 0.4%, core prices held at 0.3% for a third month, and a careful estimate puts annual inflation near 4%, higher than in September.

For your household, that means three checks this month. Confirm how any CPI-linked contract will handle the gap. Measure your next raise against 4%, not 3%. And treat December 9 as a deadline for any variable-rate debt you can clear. The normal annual number returns on December 10, one day after the Fed has already decided.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always consult with a qualified financial advisor before making investment decisions. Past performance is not indicative of future results.