With CPI Delayed, US Inflation Traders Forced to Lean on New Fallback Measures

The $7 trillion market tied to US inflation is about to rely on fallback procedures for the very first time after the nation’s longest government shutdown halted the collection of key economic data.

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The Bureau of Labor Statistics announced that it would scrap the October consumer price index report, explaining that it couldn’t retroactively gather certain inputs. That’s a major issue for the inflation-linked corner of the Treasury market and for US inflation derivatives, both of which depend on CPI readings to calculate investor payouts.

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With no official figure available, long-standing contingency rules written into bond and derivatives contracts will now come into play though the two markets use different fallback methods.

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The cancellation didn’t catch anyone off guard. White House officials signaled on Oct. 24 that October inflation data was unlikely to be released, and on Wednesday the BLS confirmed that the October unemployment rate would also be missing because of the Oct. 1 to Nov. 12 shutdown.

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“Even before the announcement, it was widely expected that the fallback would apply for October, so markets had already priced it in,” said Jon Hill, head of US inflation strategy at Barclays Capital Inc.

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While previous shutdowns have pushed back economic reports, this is the first time the BLS has been unable to produce a major release at all.

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The absence of data is creating fresh uncertainty for investors, especially at a moment when inflation remains stubbornly above the Federal Reserve’s 2% goal. While inflation has eased sharply from the pandemic-era highs of 2022, it’s still running hot enough that several Fed officials oppose moving forward with additional rate cuts. Policymakers have already lowered rates twice this year due to signs of cooling in the labor market.

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As inflation reports have become increasingly influential in shaping market expectations, some Fed members have said the lack of up-to-date data is yet another reason to pause any further reductions when they meet on Dec. 9–10.

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According to the BLS, November CPI will still be released on Dec. 18. That means the Federal Open Market Committee will head into its next meeting with September as the most recent official inflation reading.

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Normally, the BLS collects price information from around 80,000 items nationwide, largely in person. Staff had been brought back to ensure that the September data was ready necessary for calculating the Social Security cost-of-living adjustment but October price checks never took place.
The agency said it can still retrieve some non-survey components for October and will include them “where possible” in the November report.

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For Treasury Inflation-Protected Securities, or TIPS, monthly CPI figures are used to compute daily index ratios, which determine accrued interest that a bond buyer owes the seller. The October CPI would have been used to calculate values from Dec. 2 through Jan. 1, 2026.

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In cases where CPI is unavailable, TIPS rules default to a “synthetic” index value based on the most recent 12-month CPI change in this case the shift between September 2024 and September 2025.

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Inflation derivatives follow an entirely different fallback model, which will create a temporary split between the roughly $2 trillion TIPS market and the $4.5 trillion in outstanding inflation swaps cleared through LCH, a unit of the London Stock Exchange Group.

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Standard inflation swaps rely on International Swaps and Derivatives Association guidelines. If a swap isn’t tied directly to a specific security, ISDA rules apply the year-over-year CPI change for September 2025 to the October 2024 index level.

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These contrasting formulas result in different payout values. Calculations show that for October, the TIPS fallback would generate an index level of 325.604, while the swaps fallback would come in slightly lower at 325.174.

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TIPS maturing in January 2026 have significantly outperformed inflation swaps in recent weeks, a move Barclays’ Hill said reflects investors pricing in the likelihood that fallback mechanisms would be triggered.

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Earlier this month, ISDA published guidance outlining how swap fallbacks would be activated. The goal, the association said, was to reduce market risk and ensure smooth valuation and settlement practices across the industry.

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