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ITRADER - INVEST IN YOUR FUTURE
EURUSD1,05623:59 09.12.16
GBPUSD1,25823:59 09.12.16
EURCHF1,07423:59 09.12.16
USDJPY115,35823:59 09.12.16
AUDUSD0,74523:59 09.12.16
USDCAD1,31823:59 09.12.16
APPLE113,84522:59 09.12.16
GOLD1159,84023:58 09.12.16
EURUSD1,05623:59 09.12.16
GBPUSD1,25823:59 09.12.16
EURCHF1,07423:59 09.12.16
USDJPY115,35823:59 09.12.16
AUDUSD0,74523:59 09.12.16
USDCAD1,31823:59 09.12.16
APPLE113,84522:59 09.12.16
GOLD1159,84023:58 09.12.16

Prix indicatifs

What is the Consumer Price Index and How Does it Affect the Overall Economy of a Country?

iTrader - What is the consumer price index

The Consumer Price Index or CPI is essentially a benchmark inflation guide for the economy of the United States. Prices of products that you need like eggs, milk, bread, and services like a haircut are all captured by the CPI.

You can say that it’s a basket of goods approach to comparing base product prices.

Economic Indicators: CPI-U and CPI-W

There are two main types of CPI figures, one is called the Urban Wage Earners (CPI-U) and the other is Clerical Workers (CPI-W).

However, the most-watched metric is the Core CPI in the CPI-U, but it doesn’t include the energy and food prices.

Economic Indicator: Chain-Weighted CPI

There’s also another figure that’s released with the Core CPI known as the Chain-Weighted CPI. In recent years, this metric has grown in importance. The Chain-Weighted CPI basically captures the effects of consumer choice.

This index basically accounts for the substitution of new product bias. For example, if a consumer buys one product over another as a result of a price hike of the latter, the chain-weighted metric will capture the shift in purchase habits.

The Core CPI, on the other hand, will not reflect this and keep measuring the rise of the product price regardless of whether people are buying it or not.

CPIs are extremely data and detail heavy and covers most of the major consumer categories like the following:

  • Apparel
  • Food and beverage
  • Recreation

It also covers geographical regions, so you can get city averages as well.

Why is it Important to Investors?

The CPI is probably the most important economic indicator out there. The reason it’s important is because it’s very final. So whenever a CPI is released, a lot of economic questions will be answered in the markets.

The report will move both equity and fixed-income markets from the day of the release and on an ongoing basis. As a result, its impact on the overall economy can by far reaching.

It’s also a great way for analysts to confirm their predictions. Further, it will also give you an insight into what will happen at the next Federal Open Market Committee.

As the CPI will be used to make adjustments on things like the cost of living, pensions, insurance, and Medicare, the CPI will impact investors personally. As a result, fixed-income investors should always keep an eye on the rate of inflation to better judge their investments.

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