Forex Fundamentals
Forex Economic Indicators

What Is CPI (Consumer Price Index)?

By Rutger Lokin · Updated

CPI, short for Consumer Price Index, measures the average change over time in the prices consumers pay for a representative basket of goods and services. In the US, the Bureau of Labor Statistics (BLS) publishes it every month at 8:30 a.m. Eastern Time.

When a report says inflation is 3%, it usually means the CPI is 3% higher than a year earlier. Every date is on the BLS release schedule. The date and time of the next report are on When is the next US CPI report? The forecast and the recent results against it are on US Inflation Rate (CPI).

What goes into the basket

The BLS records the prices of about 80,000 items each month (BLS CPI questions and answers). It sorts them into more than 200 categories, in eight major groups:

  • food and beverages;
  • housing;
  • apparel;
  • transportation;
  • medical care;
  • recreation;
  • education and communication;
  • other goods and services.

Each item counts by how much households spend on it. A rise in rents moves the index far more than a rise in the price of stamps.

Headline and core CPI

  • Headline CPI, “all items”, includes everything in the basket.
  • Core CPI, “all items less food and energy”, leaves out the two categories whose prices swing the most. That makes the underlying rate of inflation easier to see.

Why the two can point different ways, and which one to read first, is in What Is Core Inflation?

The headline figure is the CPI-U, for urban consumers, who make up over 90 percent of the US population. The CPI-W, for the households of wage earners and clerical workers, covers about 30 percent.

Why CPI moves currencies

A central bank sets interest rates partly to keep inflation near its target, and a currency tends to follow the expected path of those rates.

  • A CPI reading above the forecast makes higher rates, or fewer cuts, more likely. That usually supports the currency.
  • A reading below the forecast does the reverse.

The surprise against the forecast moves the price more than the level does. How to read the release that way is in How to Trade CPI Inflation in Forex.

In the US, CPI is not the Fed’s target measure: its 2% goal is set on PCE. CPI comes out about two weeks earlier, so a CPI surprise still changes what markets expect from the Fed.

The other major economies publish their own CPI: Euro Area Inflation Rate (HICP), UK Inflation Rate (CPI), Japan Inflation Rate (CPI), Canada Inflation Rate (CPI) and Australia Inflation Rate (CPI).