Summary

Trump's BLS firing could raise concerns over CPI data integrity on Tuesday

Investors may demand higher TIPS compensation amid data politicization fears

Alternative data sources may gain traction

NEW YORK, Aug 11 (Reuters) - Monthly U.S. inflation data is under increased scrutiny after President Donald Trump removed the head of the U.S. Bureau of Labor Statistics, a move that could undermine confidence in the $2.1-trillion market for Treasury debt designed to protect against inflation.

The Consumer Price Index, which will be released on Tuesday, will test investors' trust in the integrity of U.S. economic data after Trump fired the BLS head this month, accusing her of manipulating jobs numbers.

It is unclear who will replace BLS Commissioner Erika McEntarfer. Still, any signs that lead investors to suspect data is being politicized could exacerbate concerns about CPI data collection.

In that case, investors are likely to demand higher compensation to hold TIPS, or Treasury Inflation-Protected Securities, whose value is linked to the CPI, and raise the federal government's cost of funding itself, analysts said. Rises in TIPS yields could be exacerbated by poorer liquidity compared to the much larger market for nominal Treasuries.

"This isn't just an academic discussion about getting the right numbers - these numbers matter for TIPS," said Michael Feroli, chief U.S. economist at JPMorgan Chase. "There's real money on the line here."