Market importance: High importance.
Meaning: A widely used measure of the overall price changes of retail goods and services.
Release time: The second or third week of the reporting month, 8:30 a.m. Eastern Time.
Frequency: Once a month.
Coverage period: The month just ended.
Revision situation: The revision can go back 5 years.
The consumer price index is a measure of the prices of a fixed basket of final consumer goods, mainly reflecting the overall price changes of the final goods and services purchased by consumers. It is also a common tool for measuring the inflation level, expressed as a percentage change.
This indicator is more lagging than the producer price index, but it is important for measuring the impact of inflation on consumption. In the United States, the main commodities that make up this indicator are divided into seven categories, including food, wine and beverages, housing, clothing, transportation, medical health, entertainment, and other goods and services.
In the United States, the consumer price index is published monthly by the Bureau of Labor Statistics. There are two different consumer price indices: one is the consumer price index for workers and clerks, abbreviated as CPW; the other is the consumer price index for urban consumers, abbreviated as CPIU.
The consumer price index is very important and enlightening and must be carefully grasped, because sometimes the publication of this indicator rises, the currency exchange rate is good, and sometimes the opposite. Because the consumer price index level indicates the purchasing power of consumers and also reflects economic prosperity.
If the index falls, it reflects the economic recession, which will inevitably hurt the currency exchange rate. But if the consumer price index rises, is the exchange rate necessarily good? Not necessarily, it depends on how the consumer price index “increase” is. If the index increase is moderate, it means that the economy is stable and upward, which is beneficial to the country’s currency.
But if the index increase is too large, it will have a negative impact, because the price index is inversely proportional to the purchasing power, the more expensive the price, the lower the purchasing power of the currency, which will inevitably be detrimental to the country’s currency.
If the impact on interest rates is considered, the impact of this indicator on the foreign exchange rate is more complicated. When the consumer price index of a country rises, it indicates that the inflation rate of the country rises, that is, the purchasing power of the currency weakens. According to the purchasing power parity theory, the currency of the country should weaken.
On the contrary, when the consumer price index of a country falls, it indicates that the inflation rate of the country falls, that is, the purchasing power of the currency rises. According to the purchasing power parity theory, the currency of the country should strengthen.
But because all countries take controlling inflation as the primary task, the rise of inflation also brings the opportunity for an interest rate rise, therefore, it is good for the currency. If the inflation rate is controlled and falls, the interest rate also tends to fall, which will weaken the currency of the region. Lowering the inflation rate policy will lead to the "tequila effect", which is a common phenomenon in Latin American countries.