Consumer Price Index

#OPINIONLEADER# #CPI#

What is CPI?

CPI is the acronym name for Consumer Price Index and it is an important economic indicator where forex traders utilize the statistical data to gauge the region growth and inflation levels. The CPI is a broad measurement with the majority of the influence coming from urban consumers.

The CPI allows traders to understand the region consumers’ expenditures such as food and beverages, housings, apparel, recreation, healthcare, transportation, education, technology, energy, and other personal services.  

Depending on the currency pair traded, the release date of the CPI numbers varies but timely between different countries and it is important to take note period that the CPI value is reflecting upon.

Another reason why forex traders pay close attention to the CPI numbers is mainly due to its influence it may impose on the Monetary policymakers such as central banks along with the unemployment rate.

With the CPI reflecting the inflation rate, if the inflation rate indicates it is below the inflation target, the central banks might reduce the interest rate to stimulate the economy to spend more. On the other hand, if the inflation rate indicates it is above the inflation target, the central banks might increase the interest rate to encourage consumer cool off spending within the economy.

The main objective of the central bank reviewing the CPI is to control and ensure inflation is rising at a constant and healthy rate.

What is the difference between

CPI and Core CPI number?

When trading forex, traders may be confused between CPI and Core CPI number in terms of which value should have a slightly higher emphasis.

To determine that, it is important to know that Core CPI does not include the statistical data gathered from food and beverage, and energy while CPI does. That means that CPI numbers are often observed to be much more volatile than Core CPI.

News reporters tend to report the CPI number rather than its core CPI value it provides information to cater to a wider range of traders such as commodities.

However, forex trader tends to focus more on the Core CPI number as it less volatile as compared to CPI numbers and it provides better accuracy of the overall inflation within the economy. Therefore, forex traders can be much profitable through understanding the difference and fundamental principles of CPIs.