When beginning FX trading, it is important to know which Forex resources are accurate indicators of economic status and currency strength. One such indicator is the Consumer Price Index (CPI), a monthly report that is released around the second or third week. With this information, investors can begin making intelligent decisions on their Forex trading platforms.
Consumer Price Index
The Consumer Price Index, also referred to as the Retail Price Index, it is an index that measures the change in sales for a hypothetical quantity of goods and services which represents the number purchased by the average consumer. In simpler terms, it is an educated projection of retail sales.
The data for this report is collected by the Bureau of Labor Statistics (BLS), which contacts thousands of retailers and gathers a list of prices for their goods and services. Quality assurance compares these goods with similar products to ensure that they are of similar quality. This is to make certain that prices are for the same quality product; for example you would not want to compare the value of a silk shirt with one made from cotton.
Some of the common goods that are included in the survey are clothing, food, energy, housing, transportation, medical care, entertainment, and education. These are typically thought of as basic necessities, which is why this is also called the “cost-of-living index.” The equations used to calculate this figure are carefully designed and give more weight to high volume items that are purchased more frequently, like food. That is why this report is so accurate an indicator for Forex brokers to make predictions.
Effect on Inflation
The Consumer Price Index is the most common indicator of inflation. When the CPI is higher, it possible that inflation is going to raise the price of goods, meaning that employers will need to increase payroll in order to meet the minimum cost of living. This report informs the Federal Reserve when to intervene in the market in order to reverse trends. Whenever the Fed takes action in the economy, the FX trading market is sure to feel the effects.
Forex Trading Platform Significance
When investigating this Forex resource, it is important to understand what the numbers indicate. A 1-2% annual increase is normal for the Consumer Price Index, but anything greater could be a sign of inflation and impending Fed intervention. Monthly changes could be influenced by aberrations in the data, such as time of year of other current Forex news. Instead, check yearly differences to see if any long-term effects have occurred, as they will provide a more accurate estimation of future change.