Consumer Price Index is a measure that examines average prices of a standardised consumer goods basket. It is most often used for the purpose of calculating inflation/deflation over a period of time.
Core CPI is equal to CPI minus energy and food prices, owing to high volatility of these product categories.
Why is it important?
Core CPI is used by the Federal Reserve to determine, whether an adjustment in the fiscal policy is required or not. By excluding energy and food prices, the Federal Reserve disregards the unnecessary price fluctuations, taking into account only the core inflation.
A relatively high inflation in the United States would mean that American goods become more expensive, when compared to goods manufactured in other countries. Higher prices lower the demand for American goods, which apparently leads to lower U.S. exports. American consumers, in turn, will spend more on import products due to relatively lower prices. The USD supply will therefore increase, lowering the exchange rate even further.
Applying core CPI to trading
The index, being a standard measure of inflation, is used to formulate the fiscal policy of the state. In the United States the CPI above 2% is usually perceived as a signal for increased fiscal regulation. High inflation in the United States will reduce the exchange rate of the USD. Low inflation in turn will increase the exchange rate of the USD.
The United States Core Consumer Prices
The United States Core Consumer Prices current level is at 251.33, and since 2013, its readings have been rising steadily, meaning inflation is more evident in the US economy. The first period of reference for the Core Consumer Prices is at January of 1957, with a reading of 28.50. This was also the all-time low price of the index. The latest reading of 251.33 in May of 2017, is the most recent all-time high price. Historically the average growth rate of the index is 3.62%, and its value one year ago was at 247.03, with a yearly change of +1.74%.
