The consumer price index is the main inflation indicator that measures the change in the value of goods and services that are in the consumer basket and are in constant demand. Usually it is built on the basis of an already selected consumer basket. The selection of its composition is a rather complicated task, which is based on special statistical studies, since it should reflect the composition of the consumed goods typical of a particular country. The change in prices for these particular products should objectively demonstrate the direction of the economic processes that are taking place here.
Statistics in the United States covers 19 thousand retail firms, as well as 57 thousand households - all this is a representative sample of 80% of the country's population. The consumer basket includes 55.9% of services and 44.1% of goods. The consumer price index is designed to characterize inflationary pressures in the country, having a very important economic importance.
Importance to Forex Market
In this market, the consumer price index is a fairly significant indicator that has a great influence, it is on it that market participants determine or try to predict the upcoming inflation, as it is the main one for the country.
The composition of the above consumer basket includes food, transportation, education, utility bills, healthcare, leisure, clothing and more. It is important to understand that each country has its own consumer basket, which is formed depending on statistical studies, as well as on the conditions of the state or region.
The consumer price index is used to determine the cost of living, which is very important for budget planning. If the calculation does not take into account industries that are considered the most changeable, in particular, energy and food, then the index will be much more reliable.
How to respond to the output of this indicator? There is a direct relationship. If it is high, then economic development is considered good, and this will lead to higher interest rates, which will make the national currency very attractive to investors.
Relationship with other indicators
The consumer price growth index has an impact on the assessment of long-term purchasing power parity by state, as well as on monetary policy at established interest rates. Typically, the growth of this indicator causes a decrease in the level of demand and retail sales in the long term, and if it is a short-term, then the growth shows a high activity of consumers. The indicator is influenced by indicators such as prices of manufactured goods, money supply, and import prices.
Indicator behavior features
The index includes goods and services, and the main differences between them are precisely in their composition. There are two rules for evaluating inflationary trends in these sectors. The most volatile is commodity sector inflation. This is the main reason that the commodity depends much more on energy and food prices. Almost half of the commodity component belongs to these two components of the industry; therefore, the change in prices here is stronger. Inflation in the services sector is less volatile, therefore, it lags behind inflation of goods. On average, minimums and maximums of price growth for services lag six months behind price fluctuations in the commodity sector.
If the consumer price index is published , the market looks at the changes that are taking place every month for the overall indicator that gives the highest percentage of inflation.