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What is the Consumer Price Index?
The Consumer Price Index, also known as the CPI, is an index released on a monthly basis related to inflation. The CPI is a group of goods and services tracked monthly to see how prices are altering within the economy. Food, rent, transportation and energy bills are included in the CPI Index.
Why is it important to currencies?
The central bank and investors use the CPI to determine inflation. When inflation is above the central bank’s target, it will most likely cause the central bank to increase interest rates favourable for the currency.
If the inflation rate is lower than the central bank’s target, the central bank may decrease interest rates to support the economy. Lower interest rates are harmful to the currency.
A higher-than-expected CPI figure is positive for the currency.
A lower-than-expected CPI figure is harmful to the currency.
Why is it important to the Stocks?
A higher expected CPI figure is positive for the currency and signals interest rate hikes. This is known to have an adverse effect on stocks. On the other hand, a lower-than-expected CPI may support the stock market as long as the inflation rate is not harmfully low.
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