Definition

CPI is an index that measures the change in price of a representative basket of goods and services and It’s also known as the cost-of-living index. These goods and services include food, clothing, shelter, newspapers and CDs. Items on which the average consumer spends a great deal of money, such as food, are given more weight, or importance, in computing the index than items such as toothpaste and movie tickets, on which the average consumer spends comparatively less. It is worth mentioning that The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. These items relate to savings and not to day-to-day consumption expenses.

Source

Bureau of Labor Statistics, Department of Labor

Frequency

Monthly(m/m).It is released at 8:30am EST on the second or third week following the month being covered. Always released after the PPI.

Importance

The Consumer Price Index, or CPI as it is more commonly known is also sometimes referred as the ”Retail Price Index” and is often considered the most widely used and most accurate measure of inflation.The CPI is a fixed quantity price index and also a form of cost of living index and is considered one of the most useful tools in financial circles as it can provide clues as to movements in inflation.

Signs of inflation means the central bank has to raise interest rates. The most widely used indicator of inflation is CPI. If CPI is increasing, then it gives a central bank such as the Fed the necessary supportive data to hike rates. Higher interest rates are bullish for the country’s currency.

How to trade the CPI

The best way to take advantage of the news could be to go with a non-directional bias and simply go with a straddle play. By this, I mean you can place buy / sell orders above / below the current price and take advantage of any strong reaction to the release of the report. Usually this report dictates the direction in which the price will move for the following period so it is worth keeping a close eye on it.

Wonder how the price reacted in the past? Here are a few examples.

12 dec 2018

CPI- Actual:0%    Forecast:0%        Previous:0.3%

Core CPI- Actual:0.2%    Forecast:0.2%        Previous:0.2%

14 nov 2018

CPI- Actual:0.3%    Forecast:0.3%        Previous:0.1%

Core CPI- Actual:0.2%    Forecast:0.2%        Previous:0.1%

11 oct 2018

CPI- Actual:0.1%    Forecast:0.2%        Previous:0.2%

Core CPI- Actual:0.1%    Forecast:0.2%        Previous:0.1%

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