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The U.S. Labor Department has scaled back its inflation data collection efforts due to a government hiring freeze instituted by the Trump administration, stirring concerns among economists regarding the quality of inflation figures. As tariffs' impact on the economy garners attention, questions about the accuracy of critical economic data arise.

The Bureau of Labor Statistics (BLS), responsible for the monthly consumer price index (CPI), announced that it has trimmed its data sampling in various regions. Starting in April, the BLS ceased collecting price data in Lincoln, Nebraska, and Provo, Utah, and halted data collection in Buffalo, New York, this month. In a communication to economists viewed by The Associated Press, BLS revealed that it "temporarily reduced the number of outlets and quotes it attempted to collect due to a staffing shortage." This reduction is set to persist until the hiring freeze is lifted.

The cutbacks have heightened concerns that government spending cuts might compromise the federal government's ability to collect essential economic data on employment, prices, and the broader economy. Last month, BLS also announced it would discontinue collecting wholesale prices in roughly 350 categories for its Producer Price Index, a key measure of price changes before they reach consumers.

Inflation data is crucial to the U.S. economy, affecting the annual cost of living adjustments for Social Security recipients and determining interest rates on approximately $2 trillion of inflation-adjusted Treasury bonds. Many private-sector wages are also linked to the CPI.

These reductions come at a time of significant uncertainty about the U.S. economy and the effects of Trump's expansive tariffs on employment, growth, and inflation. Federal Reserve officials have frequently cited this uncertainty as a reason for pausing further cuts to short-term interest rates, following three reductions last year.

Omair Sharif, chief economist at Inflation Insights, expressed concern, noting that the reduced sample size makes the CPI and PPI potentially less reliable. The BLS contends that the cutbacks will have minimal impact on overall inflation data but acknowledged the possibility of increased volatility in specific item prices.

President Trump initiated the federal hiring freeze on his first day in office and extended it from April through late July. The freeze could remain in place indefinitely, affecting future inflation reports.

The cutbacks' full impact on inflation figures remains uncertain, as the BLS hasn't provided enough information for a definitive assessment. However, a smaller sample size may introduce more estimation errors, rendering inflation indices more volatile and potentially less precise.

Earlier this year, the Trump administration dissolved several advisory committees that collaborated with BLS and other statistical agencies on refining data collection methods. Alan Detmeister, an economist at UBS, believes that while the recent cuts had minimal impact on April's inflation figures, prolonged or expanded cuts could compromise the reliability of these statistical agencies' outputs.

BLS compiles its monthly inflation reports with a substantial workforce, gathering price data from retail stores, online sources, and phone surveys. Despite potential funding cuts and workforce reductions, the rigorous collection methods are critical to maintaining the accuracy of these economic indicators.

Erica Groshen, a former BLS commissioner, noted that the agency has lost about 15% of its personnel since the beginning of the year, a trend likely driven by diminishing morale amid recent government worker critiques. This loss in staff could jeopardize lesser-known but important economic measures, such as import price indexes and job openings reports.