Why do traders need to know about CPI/Core CPI?
CPI and Core CPI are news reports from the Fed. Those who have studied the basics may have heard or are somewhat familiar with them, while beginners might not yet know what CPI and Core CPI news are. Are they different or the same? It’s important to know that both CPI and Core CPI can indicate the trend of inflation—whether it’s rising or falling—and they are crucial factors affecting currencies in both the short and long term.
What are CPI and Core CPI?
CPI stands for Consumer Price Index, which is the general consumer price index. Its scope ranges from buying coffee, paying for public transportation, to paying rent for a house.
Core CPI stands for Core Consumer Price Index, which is the basic consumer price index. Its scope measures changes in prices of goods and services excluding the food and energy categories because those tend to be volatile in the short term. The index changes are based on consumer spending. The Federal Reserve’s monetary policy committee and investors usually pay more attention to this measure.
Why do traders need to pay attention to the CPI news?
These CPI index numbers are important for major currencies like the USD (US Dollar).
– A higher-than-expected index causes the USD to strengthen.
-A lower-than-expected index causes the USD to weaken.
-Core CPI m/m is the month-over-month change of the Core CPI.
-CPI m/m is the month-over-month change of the CPI.
-CPI y/y is the average yearly CPI.
Finally, if the numbers are too high, it indicates higher inflation, which can influence the central bank’s decisions on monetary policy, potentially leading to higher interest rates. Conversely, if the numbers are too low, it may signal lower interest rates.
