Importance: ***

Definition: The consumer price index (CPI) is considered the most important measure of inflation. It compares prices for a fixed-list of goods and services to a base period. Currently, the base period, which equals 100, is the average prices that existed between 1982-1984.

 
Related Indicators:

Source: Bureau of Labor Statistics of the U.S. Department of Labor

Frequency:  Monthly

Availability: Two to three weeks following the reported  month

Direction:

Timing:

Volatility: Moderate
 
Likely Impact on Financial Markets:
 
                    Interest Rates: Larger-than-expected monthly increase or increasing trend is
                    considered inflationary, causing bond prices to drop and yields and interest rates to
                    rise.

                    Stock Markets:

                    Exchange Rates: ....

Ability to affect markets:

Analysis of the Indicator:

The CPI categories and respective weightings are:
    Housing 42%
     Food 18%
     Transportation 17%
     Medical Care 6%
     Apparel 6%
     Entertainment 4%
     Other 7%

Unlike other measures of inflation, which only cover domestically-produced goods, the CPI covers
imported goods, which are becoming increasingly important to the U. S. economy. The one
drawback to the CPI is its small sample size.

Analysts focus on the "core" CPI, which excludes the volatile food and energy sectors. The core
index is considered a more accurate measure of the underlying rate of inflation.

The bond market is very sensitive to changes in the CPI that exceed expectations. For example, a
higher-than-expected CPI can cause bond prices to fall and yields to rise. Likewise, a
lower-than-expected figure is bullish for the market, causing the bond to gain and yields to fall.

WEB Links

A Graph of the latest CPI data from The Economic Statistics Briefing Room of the White House.

The latest CPI report from BLS.