Consumer price index

The consumer price index isThe main inflation indicator that measures the change in the value of goods and services in the consumer basket and is in constant demand. Usually it is built on the basis of the already selected consumer basket. Selection of its composition is quite a complicated task, which is based on special statistical studies, since it should reflect the composition of the consumed goods, typical for this particular country. The price change for these goods should objectively demonstrate the direction of the economic processes that are taking place here.

Statistics in the United States covers 19 thousand retailfirms, as well as 57,000 households - this is all a representative sample of 80% of the country's population. The consumer basket includes 55.9% of services and 44.1% of goods. The consumer price index is intended to characterize inflationary pressures in the country, having a very important economic significance.

Importance for the Forex market

In this market, the consumer price index -a sufficiently significant indicator having a great influence, it is for this market participants who determine or try to predict the forthcoming value of inflation, since it is he who is the main for the country.

In the composition of the above-described consumer basketincludes food, transportation, education, utility bills, health care, recreation, clothing, and so on. It is important to understand that each country has its own consumer basket, which is formed depending on statistical research, as well as on the conditions of the state or region.

The consumer price index is used fordetermination of the subsistence minimum, which is very important for budget planning. If the calculation does not take into account the industries that are considered the most variable, in particular, energy and food, the index will be much more reliable.

How to respond to the output of this indicator? There is a direct dependence. If it is high, then the development of the economy is considered good, and this will lead to an increase in interest rates, which will make the national currency very attractive for investors.

Interrelation with other indicators

The consumer price growth index rendersimpact on the assessment of purchasing power parity in the long run across states, as well as on monetary policy at fixed interest rates. Usually, the growth of this indicator causes a decline in demand and retail sales in the long run, and if it is a short-term one, then growth shows a high activity of consumers. The indicator is influenced by such indicators as the prices of industrial goods, the volume of money supply, and import prices.

Features of the behavior of the indicator

The index includes goods and services, andthe main differences between them are precisely in their composition. There are two rules for assessing inflation trends in these sectors. The most variable is the inflation of the commodity sector. This is the main reason, that the commodity depends much more strongly on energy and food prices. Almost half of the commodity component belongs to these two components of the industry, therefore the price change here is more pronounced. Inflation in the services sector is less variable, so it lags behind the inflation of goods. On average, the minima and maxima of price growth for services lag behind for half a year from price fluctuations in the commodity sector.

If the consumer price index is published, the market looks at the changes taking place with each month on the general indicator, which gives the highest percentage of inflation.