The US consumer price index (CPI) grew year-on-year by 2.4%, beating expectations of 2.3%, while the previous reading was at 2.5%. These data are released by the Bureau of Labor Statistics and highlight the change in the prices of goods and services purchased by consumers.
This indicator is one of the basic indicators on which the financial markets depend, as it reflects price changes see the direct impact on the purchasing power of consumers. A CPI reading is especially important for traders and investors.
as rising prices can lead the Federal Reserve to make decisions to increase interest rates in an attempt to control inflation.
Interest rates significantly affect the market value of the US dollar, as the increase in interest rates enhances the attractiveness of the dollar as an investment, which increases the demand for it. Pleasure For you, any CPI reading that exceeds expectations is seen as positive for the dollar.
Moreover, this indicator includes non-seasonally changing components, making it one of the few data released in this format. This indicator is released monthly, approximately 16 days after the month ends, providing forex traders with an opportunity to react to new information quickly.
The annual rise in the CPI shows that inflation continues to significantly affect the US economy, which it indicates the potential need for further interest rate increases in the future. Although current data shows slight growth from expectations, markets remain cautious of future readings.
The next CPI reading is expected to be released on November 13, 2024, which could lead to significant movements in the financial markets.
Factors affecting the CPI
The Consumer Price Index (CPI) is one of the main economic indicators that measures changes in the prices of goods and services purchased by consumers. The fluctuations of this index reflect changes in the cost of living and are vital data for policymakers, investors, and consumers.
There are many factors that affect the CPI, which can be divided into economic, external, and behavioral factors. One of the main economic factors is supply and demand. When the demand for goods and services rises in the market, prices tend to increase, leading to a rise in the CPI.
On the flip side, if supply exceeds demand, prices may fall. Production costs also play a big role in determining commodity prices. Higher costs of raw materials, wages, and transportation can raise the prices of finished products and thus increase CPI. Moreover, monetary policies play an important role in determining the level of inflation. When the central bank decides to cut interest rates, it makes borrowing less expensive.
boosting consumer spending and investment, and this may lead to increased inflation.
Conversely, increasing interest rates can reduce spending, which can contribute to reduced inflation. Changes in interest rates also affect the value of the currency, affecting import prices. For exports, thus reflected on the CPI. An external factor that affects the CPI is also energy prices.
Oil and gas prices are major influences on the cost of transportation and production.
and therefore affect the prices of consumer goods. For example, any rise in oil prices can lead to increased transportation costs.
which negatively affects the prices of food commodities and other products. Consumer behavior is another factor affecting the CPI.
The impact of inflation on purchasing power of consumers
Inflation is an economic phenomenon that expresses the continuous increase in the prices of goods and services.
and it significantly affects the purchasing power of consumers. Purchasing power is the ability to purchase goods and services based on disposable income, and when inflation rises.
it means that prices rise while income remains constant or increases at a rate below the rate of inflation.
Thus, this situation reflects negatively on the purchasing power of consumers. When inflation rises, the prices of basic items, such as food and energy, begin to increase significantly. This means that households need to spend a larger portion of their income to buy the same amount of goods and services.
reducing the rest of their income for consumption in other areas.
Hence, lifestyle is greatly affected, as households may have to reduce their expenses on entertainment, savings or even basics. One of the obvious effects of inflation is its impact on savings. If inflation rates are higher than the interest rates offered by banks on savings, the value of real savings decreases over time.
This makes it difficult for individuals to maintain their standard of living, as price inflation can lead to the loss of savings, prompting consumers to reduce consumption or look for less expensive.
Also, inflation affects investments. When inflation rises, investors may be reluctant to allocate their money to certain assets, such as bonds.
as they may not provide enough return to go along with inflation.
This can affect financial markets in general, as investors prefer assets that retain their value under inflationary conditions, such as gold or real estate.
