What is CPI in Forex?

What is CPI (Consumer Price Index)?

CPI measures the average price change of a basket of goods and services paid by consumers. Because most central banks target inflation near 2%, CPI is the single most important data point for rate expectations—and therefore for currency valuation.

How CPI Is Built

• Headline vs. Core: Headline includes food/energy; Core strips them to reduce volatility.
• Weights matter: Shelter and services often dominate the index and move slowly.
• MoM vs. YoY: MoM captures momentum; YoY smooths noise but can be distorted by base effects.

What Traders Track

• Services ex‑housing: A proxy for underlying, wage‑driven inflation.
• Shelter lag: Rental measures feed through slowly; watch leading rent trackers for turns.
• Diffusion: How broad are price increases? Narrow spikes are easier to fade.

Release Mechanics

• Monthly cadence; large moves occur within the first 5–15 minutes.
• Shelter components often lag—watch leading rent trackers for turns.
• Revisions are rare but narrative shifts come from trends across months.

Country differences matter. Basket weights vary, so identical shocks can produce different CPI prints across regions. Energy‑heavy economies show larger headline swings; services‑heavy economies exhibit more persistence. Always compare like‑for‑like series before drawing cross‑market conclusions.

Trading CPI

• Size down into the print; spreads and slippage jump on release.
• Follow 2‑year yields and OIS—if they don’t confirm, fade knee‑jerk FX moves.
• Map scenarios and key components in advance to avoid emotional decisions.
• Track revisions; inflation narratives shift on trend changes, not one print.

Practical example: Core CPI prints 0.4% MoM vs 0.3% expected, with services ex‑housing re‑accelerating. 2‑year yields jump 12 bps and USD rallies broadly; fade only if rates retrace and the move is concentrated in a single idiosyncratic category.