CPI Report Explained In Simple Terms | It's Not As Complicated As You Think

<WikiFX Malaysia Original: Editor – Fion>

In the world of Finance and Economics, we are usually bombarded with many industry jargons that make the learning and/or researching processes overwhelming, especially at the beginning stage. In Tuesday's article, we highlighted that America's CPI report would be released on Wednesday night (UTC +8) but what is this report that stirs up volatility in the forex market all about？

To put it simply, the CPI report stands for Consumer Price Index in full. According to Investopedia, the CPI measures the average prices of a basket of consumer goods and services. A detailed breakdown of the components within this basket can be seen in the image below. The figure of the CPI is calculated by averaging the price changes for each item in the predetermined basket of goods.

The CPI report is released every month by the U.S. Bureau of Labour Statistics to measure the changes in the cost of living. This change is also widely used as a method to measure inflation.

To keep it simple, when looking at a newly released CPI report, the key question to consider is “did prices go up or did prices go down” in that particular month.

In March 2022, the world was taken by surprised by the highest inflation rate in over 40 years (more details can be found here: https://www.wikifx.com/en/newsdetail/202204135534370014.html) with energy prices skyrocketing as a result of the Russia-Ukraine war. That was because Russia is one of the largest oil producers in the world, and one of the most highly dependent oil suppliers for Europe, with it being at war, the drop in supply was naturally followed by an increase in price.

The U.S. April CPI report unexpectedly exceeded the expectations of many with a record of 8.3% increase instead of the forecasted 8.1%. Surprisingly, the monthly CPI plunged from the previous 1.2% to 0.3%. However, the monthly core CPI rate rose to 0.6% from 0.3%, higher than the expected 0.4%. The annual core CPI also fell from 6.5% to 6.2% but still exceeded the expected record of 6%.

Although the U.S. CPI remains at a high level, many analysts suggest that the overall inflation rate has shown signs of slowing down. From April's CPI report, we could see a notable drop in a few sectors, especially in the energy prices.

Now that you have understood the makeup of the entire CPI report, moving forward, you can easily identify what is the factor(s) that contributes to inflation and determine if inflation is soaring or plunging.

Overall, is this April CPI report bad？ From a rational perspective, despite it not achieving the expected rate at 8-8.1%, undeniably, this report does demonstrate a sign of improvement, though slight. During challenging times like this, this scenario is better than things staying stagnant or going further south.

Tonight, May 11 at 8.30 pm (UTC +8), the U.S. will be releasing its Producer Price Index reports, which is another event to be mindful of for all USD traders and/or investors.

Don't miss out on any impactful economic events by keeping up with WikiFX's economic calendar function which is free to use by anyone at https://live.wikifx.com/en/calendar.html.

Head to www.wikifx.com for more useful tools and information that can be beneficial for your forex trading. Alternatively, download the WikiFX app for free on your devices on Google Play or Apple Store.

<WikiFX Malaysia Original: Editor – Fion>