Overview of Consumer Price Index (CPI) and Core CPI

Overview of Consumer Price Index (CPI) and Core CPI

Release Date: March 12, 2025, at 12:30 PM GMT / 09:30 AM Eastern / 08:30 AM Central Data

Core CPI (m/m):The Core Consumer Price Index measures the monthly change in prices of goods and services, excluding food and energy. By omitting these volatile components, Core CPI provides a more stable and accurate reflection of underlying inflation trends.
CPI (m/m): The Consumer Price Index tracks the monthly change in prices of a comprehensive basket of goods and services from the consumer's perspective. It includes all items, offering a broader measure of inflation compared to Core CPI.
CPI (y/y): The Consumer Price Index measures the annual change in prices of a basket of goods and services. This metric provides an annualized inflation rate, illustrating how prices have evolved over the past year.

Expected Data for January 2025

Importance of CPI Data to the Federal Open Market Committee (FOMC)

The Federal Open Market Committee (FOMC) places significant emphasis on CPI data due to its critical role in assessing inflation trends, which are central to the FOMC’s dual mandate of promoting maximum employment and maintaining price stability. Key reasons for the FOMC’s focus on CPI data include:

1. Inflation Monitoring:CPI data enables the FOMC to monitor inflation levels and trends, determining whether inflation is within target ranges or deviating significantly.
2. Monetary Policy Decisions: The FOMC relies on CPI data to guide its monetary policy decisions, including adjustments to interest rates. Elevated inflation may prompt rate hikes to temper economic activity, while subdued inflation could lead to rate cuts to stimulate growth.
3. Economic Stability: Maintaining inflation within a target range is essential for economic stability. Excessive inflation can erode purchasing power and create uncertainty, while persistently low inflation may lead to deflation and economic stagnation. The FOMC aims to strike a balance that supports sustainable economic growth.
4. Market Expectations: CPI data significantly influences financial markets and investor expectations. Higher-than-anticipated inflation can trigger market volatility and affect investment strategies. The FOMC's responses to CPI data help manage these expectations and maintain market confidence.

Impact on Financial Markets

The release of CPI data typically has several notable effects on financial markets:

1. Bond Markets: CPI data can significantly influence bond yields. Higher-than-expected inflation often leads to increased bond yields as investors seek higher returns to compensate for diminished purchasing power. Conversely, lower inflation may result in reduced yields.
2. Stock Markets: Inflation data impacts stock prices. Elevated inflation may raise concerns about rising operational costs for businesses, potentially squeezing profit margins and leading to lower stock prices. Conversely, lower inflation can be favorable for equities, signaling stable costs and the potential for lower interest rates.
3. Currency Markets:CPI data can affect the value of the US dollar. Higher inflation may lead to expectations of Federal Reserve rate hikes, strengthening the dollar. Lower inflation could have the opposite effect.
4. Interest Rate Expectations: Investors closely monitor CPI data to anticipate future Federal Reserve actions. Higher inflation may lead to expectations of rate increases, while lower inflation could signal potential rate cuts or a pause in rate adjustments.
5. Consumer Sentiment: High inflation can erode consumer purchasing power, reducing consumer confidence and spending. This broader economic impact can influence overall economic performance and financial markets.
6. Market Volatility: The release of CPI data often results in increased market volatility as investors react to the new information and adjust their positions accordingly.

Key information

Expected Impact

Lower-than-expected inflation may reduce the likelihood of rate cuts, potentially weakening the currency. If USD-based currencies decline, USD-quoted currencies may appreciate, commodities could rise, equity markets may experience gains, and emerging markets might face downward pressure.