The Consumer Price Index
The Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a key economic indicator that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is used to assess price changes associated with the cost of living.
Important Points about CPI
- 1. Measurement: The CPI tracks the prices of a fixed basket of goods and services, including food, housing, transportation, and medical care, among others.
- 2. Components: It includes two main indexes:
- CPI-U: CPI for all Urban Consumers.
- CPI-W: CPI for Urban Wage Earners and Clerical Workers.
- 3. Core CPI: This variant excludes volatile items like food and energy to provide a clearer picture of underlying inflation trends.
- 4. Calculation: The Bureau of Labor Statistics (BLS) calculates the CPI by collecting price data from various locations across the country.
- 5. Uses:
- Economic Indicator: It is a primary measure of inflation.
- Policy Making: It helps guide monetary policy decisions by the Federal Reserve.
- Cost of Living Adjustments: Used to adjust salaries, pensions, and social security benefits to maintain purchasing power.
Why is FOMC watching CPI data?
- Economic Health: A rising CPI indicates inflation, meaning that the cost of goods and services is increasing. This can erode purchasing power if wages do not keep pace.
- Investment Decisions: Investors use CPI data to make decisions about stocks, bonds, and other investments, as it influences interest rates and market expectations.
The latest U.S. Consumer Price Index (CPI) news indicates that the CPI is set to rise by 2.7% year-over-year (YoY) in November 2024. The core CPI inflation, which excludes volatile food and energy prices, is expected to remain steady at 3.3%. This data is crucial as it provides insights into inflationary trends and helps the Federal Reserve (Fed) make informed decisions about monetary policy.
Key Points
- CPI Increase: The CPI is projected to rise by 2.7% YoY in November, slightly higher than the 2.6% growth reported in the previous month.
- Core CPI: Core CPI inflation is expected to stay steady at 3.3%.
- Market Impact: The release of CPI data can significantly influence the U.S. dollar and financial markets. Strong CPI data can lead to a stronger dollar and impact stock and bond markets.
The Consumer Price Index (CPI) news has a significant impact on financial markets due to its role as a key indicator of inflation. Here’s how CPI news can affect different financial markets:
Interest Rates
- Central Banks: Central banks, like the Federal Reserve, closely monitor CPI data to make decisions about monetary policy. Higher CPI (indicating higher inflation) may prompt central banks to raise interest rates to control inflation, while lower CPI may lead to rate cuts to stimulate economic growth1.
Bond Markets
- Bond Prices and Yields: There is an inverse relationship between CPI and bond prices. When CPI rises, bond prices tend to fall, leading to higher yields1. Investors pay close attention to CPI data to assess the risk of inflation eroding purchasing power.
Stock Markets
- Investor Sentiment: Rising inflation (higher CPI) can lead to concerns about reduced consumer spending power, potentially impacting corporate earnings and stock prices. Conversely, low inflation can be favorable for stocks as it suggests economic stability1.
- Sector Performance: Different sectors react differently to inflation. For example, sectors like utilities and consumer staples may perform better during high inflation, while sectors like technology may be more sensitive to interest rate changes.
Currency Markets
- Exchange Rates: CPI data can influence currency exchange rates. A country with lower inflation may see its currency appreciate relative to countries with higher inflation1.
Commodity Markets
- Commodity Prices: Higher inflation can increase demand for commodities as a hedge against inflation, driving up prices. Conversely, lower inflation can reduce demand and prices for commodities.
Business and Consumer Impact
- Pricing Strategies: Businesses use CPI data to make informed decisions about pricing strategies. Rising inflation may necessitate price adjustments, affecting consumers' budgets1.
- Cost of Living: CPI data helps consumers gauge the cost of living and plan accordingly. An increase in CPI can signify higher expenses for households1.
- Wage Negotiations: Employees and labor unions often use CPI data during wage negotiations to ensure that salaries keep pace with inflation.
Understanding CPI news is crucial for investors, businesses, and policymakers as it provides insights into inflation trends and helps guide economic decisions
What do we expect ?
We expect the US dollars to weaken, so commodity prices will rally, expect bullish momentum in commodities and US markets. USD based currencies fall and USD quote currencies rally. Emerging markets will remain tepid.
Key factors
- Date and time: 11 Dec 2024 / 01: 30 PM GMT / 08:30 EST / 07:30 CENTRAL;
- ISSUER: Bureau of Labor Statistics.
- LATEST DATA: 0.2%
- FORECAST: 0.2%