Lesson 7: How to Interpret the Consumer Price Index
Lesson 7: How to Interpret the Consumer Price Index br>
In our last lesson we looked at the Producer Price Index, an indicator which is designed to show the fluctuations in prices received by producers for their goods. In today’s lesson we are going to look at an indicator which is designed to represent increases or decreases in prices paid by the end consumer and can also cause large market movements, the Consumer Price Index.
Released at 8:30 am eastern standard on approximately the 15th of each month, the Consumer Price Index (CPI) is a measure of the changes in prices paid by urban consumers for a fixed basket of goods and services.
Where the Producer Price Index (PPI) which we learned about in our last lesson measures the increase or decrease in the price producers receive for their goods, the Consumer Price Index (CPI) measures the price that consumers pay for those goods.
The question that naturally arises when hearing this is wouldn’t those two numbers be the same or at least move in tandem with one another? The answer to that question is not necessarily, for the following reasons:
1. The PPI is designed to measure the entire marketed output of US producers which includes goods and services purchased by other producers. (The CPI includes only goods purchased by consumers)
2. Imports are excluded from PPI but included in CPI
3. Taxes paid as part of the purchasing price by the consumer are not included in PPI but are included in CPI.
The important thing to understand here is that while changes in PPI are normally looked at as having predictive power as to changes in the CPI, a rise or fall in the PPI does not necessarily mean the same rise or fall in the CPI. As this is the case, and as the CPI is the end price paid by the consumer, this number best represents the level of inflation in the US economy.
In addition to showing fluctuations in price for different areas of the country, the CPI also shows the fluctuation in price for different groups of products such as housing, transportation, medical care etc. This allows traders to see not only the price fluctuations of the overall economy but also for different areas of the economy.
There are two main CPI numbers reported which are the CPI for Urban Wage Earners and Clerical Workers (CPI-W) and the CPI for all Urban Consumers (CPI-U) which basically give two separate numbers for the price increases experienced by working people and the price increases experienced by all consumers.
As with the PPI the Consumer Price Index is also presented without volatile food and energy included. This “Core CPI” number or CPI-U minus food and energy is the most widely followed number.
As we have learned in previous lessons, the level of inflation in the economy has a huge effect on the markets, so as the CPI is the primary measure of inflation, fluctuations in this number can create large market volatility as well.
As with all the indicators we are studying the market is going to react differently to the number depending on what it is focused on at that time so the best way to learn how to anticipate market reaction under different scenario’s with this number, is to follow several releases. With this in mind I will be posting a discussion starter in the comments section of this lesson on InformedTrades.com after the next release. If you are watching this video on Youtube you can find a link to that lesson in the description section of this video.
I have also included a link to the latest report which you can find below this video if you are watching on InformedTrades.com or in the description section as well if you are watching this on Youtube.
That’s our lesson today, in our next lesson we are going to look at another indicator which has ramifications on both price and growth in the economy, existing home sales, so we hope to see you in that lesson.
Actionable trading levels delivered LIVE to YOUR charts
Mon 27 May 2019 AAGB/US- Holiday Tue 28 May 2019 A 14:00 US- Consumer Confidence C 13:00 US- Case-Shiller Wed 29 May 2019 A 08:55 DE- Employment AA 18:00 US- BOC Decision A 18:30 US- EIA Crude Thu 30 Mar 2019 AAEZ/CH- Holiday A 12:30 US- Weekly Jobless Fri 31 Mar 2019 AA 10:00 EZ- Flash HICP A 12:30 US- Personal Income, Spending, Deflator AA 14:00 US- Final Univ of Michigan
Global-View Affiliate Program
We are starting an affiliate program to market some of our products.
Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.
Put the word "affiliate" in the email subject line.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.