What is CPI in Forex?
Quick Answer: CPI tracks consumer price inflation by measuring how the cost of a basket of goods changes over time. It is the primary inflation gauge central banks use when setting interest rates, making every release a high-impact event.
What is CPI (Consumer Price Index)?
CPI is the primary measure of consumer price inflation, tracking price changes for a basket of goods and services. Central banks obsessively monitor CPI because their mandate includes maintaining price stability around 2%. Rising CPI prompts rate hikes (currency strength), while falling CPI enables rate cuts (currency weakness).
Types of CPI
- Headline CPI: Total inflation including food/energy
- Core CPI: Excludes volatile food/energy (Fed's preferred metric)
- MoM: Month-over-month change
- YoY: Year-over-year change (most referenced)
Practical Example
US Core CPI shows 0.5% MoM vs 0.3% expected. This hot inflation print signals continued Fed rate hikes. USD rallies 80+ pips as traders price in higher terminal rates.
Trading CPI Releases
- High impact: 50-150 pip moves on surprise readings
- Monthly release: Mid-month for prior month's data
- Extreme volatility: First 5-15 minutes post-release
- Wide stops needed: Slippage common
Related Terms
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