The Consumer Price Index (CPI) is a critical indicator of pricing pressures in an economy and provides a gauge of inflation
. It measures the change in prices paid by consumers for goods and services, such as food, energy, housing, clothing, transportation, medical care, entertainment, and education
. The CPI is calculated by averaging price changes for each item in a predetermined basket of consumer goods and services, including food, energy, and services such as medical care
. CPI is important for forex traders because it can lead to changes in monetary policy by central banks, which can either strengthen or weaken the currency against rivals in the markets
. The release and revisions of CPI figures can produce swings in a currency's value against other currencies, potentially offering favorable volatility for skilled traders
. Additionally, CPI data is often recognized as a useful gauge of the effectiveness of a government's economic policy in response to the condition of their domestic economy, which forex traders can consider when assessing the likelihood of currency movements
. When trading forex against CPI data, traders should consider the market expectations for inflation and what is likely to happen with the currency based on the CPI release
. The Core CPI figure, which excludes food and energy costs, provides a better look under the hood by focusing on the more stable components of the economy
