Forex Trading Library

CPI – The Most Important Economic Indicator of the Week

0 326

If you want to place trades on FX this week, you must know what the CPI is. The CPI acronym stands for Consumer Price Index, and it is the most common used measure for inflation within a country or an economy, taking into consideration the costs of services and goods. The value of currency in relation to other currencies can be seriously impacted by the variation of the CPI.

As a formula, the CPI can be defined as the weighted average of prices from a predefined basket of consumer services and goods, here including also costs of food, energy and transportation. Analysts are using the CPI gauge to measure price changes in the individuals’ cost of living. So, when the inflation is too low, a central bank (i.e. Federal Reserve) might resort to cutting the interest rates in order to trigger the economy. On the other hand, when the inflation is too high, the interest rates might go up in order to stabilize the prices; through this measure, consumers are more likely to save money instead of spending it, mainly due to the higher return rate received for keeping their money in a deposit.

In the forex markets, the CPI is one of the most monitored indicators amongst investors. The US dollar is one of the most impacted currencies in the world when the monthly CPI is being released by the Bureau of Labor Statistics, the variations of this indicator causing swings in the dollar’s value in all markets.

The Forex traders consider the CPI and its direct derivative, the core CPI, as one of the most important performance indicators in an economy. The core CPI provides a better picture of the country’s position due to the fact that it excludes from calculation the cost of energy and food, which are recording higher volatility over time. Yearly or year-over-year (YOY) and monthly or month-over-month (MOM) are the most used periods to compare CPI’s, and they do measure the values from the current period and compare it with those from another period.

Next week’s CPI releases:

  • Tuesday, 9:30 – UK inflation went up to 0.5% for the month of March from the 0.3% recorded in February. April is expected to post also 0.5%.
  • Tuesday, 13:30 – US CPI came nearly flat in March, going up only 0.1%, after a 0.2% decline in February. YOY, the CPI went up 0.9%, with a 1.0% advance in February.
  • Wednesday, 10:00 – in the Eurozone the CPI and the core CPI continue to remain unrevised at -0.2%, respectively 0.7%.
  • Friday, 13:30 – the MOM CPI for Canada is forecasted at 0.4%, after March’s reading came at 0.6% when the forecast was of 0.3%.

*All times are GMT.

 

 

 

Leave A Reply

Your email address will not be published.