Consumer Price Index (CPI)

The Consumer Price Index is one of the leading economic gauges to measure the pace of inflation. Simply put, CPI measures the acceleration of price in a fixed basket of goods and services. Higher CPI indicates that prices of the basket as a whole have increased and as such, it costs more of the local currency to buy the same basket of goods. CPI is also broken down to a core level which strips out the volatile components of the index, which usually include food and energy, but this various by country. Usually, central banks pay far greater importance to the core numbers than the headline numbers. Excessive inflation will induce a central bank to consider raising interest rates while falling inflation would give them the flexibility to lower interest rates.

 

Differences in CPI
Because each country has different living standards and consumption habits, each country has a unique CPI with different baskets of goods and services. Each country may also choose to benchmark their prices to different years, reflective of differing monetary policy for each country’s central bank.

Thus comparing one country’s CPI to another is never perfect – 2.0% inflation in the US may be different than 2.0% CPI in Japan . However economist and traders pay attention to developing trends in inflationary figures -specific to the country- to help forecast future rates.

Core CPI
Because excessive volatility may exist for certain components of CPI, countries may release “Core” CPI figures, which control for the most volatile goods and services. Components excluded from Core CPI usually consist of fresh food and energy, but will vary from country to country. Many countries also release seasonally-adjusted CPI figures, as prices can fluctuate with seasonal regularity.

Recent CPI Reports and Analysis from DailyFX

United States Consumer Price Index | Canadian Consumer Price Index (CPI)
UK Consumer Price Index (CPI) | Euro-Zone Consumer Price Index (CPI)
French Consumer Price Index |Consumer Price Index – Germany |
Consumer Price Index (CPI) – German Six States
Consumer Price Index (CPI) – Switzerland |
Australian Consumer Price Index (CPI)

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