What Is the Consumer Price Index (CPI)?

What the Consumer Price Index is, what goes in the basket, the difference between headline and core, when the US CPI is released, and why a print that matches the forecast can still move markets.

The Consumer Price Index measures the average change in the prices paid by households for a fixed basket of goods and services. Its monthly release is the most watched inflation number in most economies, and in the United States it is among the two or three scheduled events that reliably move currencies, bonds and equities in the same minute.

Key Takeaways

• CPI tracks a fixed basket — housing, food, transport, healthcare, recreation — weighted by household spending.
• Headline CPI includes everything; core CPI excludes food and energy to show the underlying trend.
• Reported month on month and year on year. The surprise against consensus, not the level, moves markets.
• US CPI is released monthly by the Bureau of Labor Statistics, at 08:30 Eastern Time on a pre-announced date.

What Is in the Basket

The statistics agency surveys prices for hundreds of items and groups them into categories, each weighted by its share of typical spending. In the US index, shelter is the largest single component — roughly a third of the basket — followed by transport and food. The weights are updated periodically to reflect changing spending patterns.

The index itself is a level; the inflation rate is its percentage change. See what is inflation.

Headline and Core

Food and energy prices swing on weather, harvests and geopolitics rather than on domestic demand, and they reverse. Core removes that noise. When headline and core diverge, markets tend to trade the one the central bank is watching, which is usually core.

Month on Month, Year on Year

Year on year compares this month's index with the same month a year earlier and is the headline figure. Month on month compares with last month, is noisier, and is the earliest sign of a turn. A single hot month-on-month print, compounded, implies a very different annual rate from the current one, which is why markets often react to the monthly figure more than the annual.

Why CPI Moves Markets

Central banks raise rates to cool inflation and cut when it is below target, so a CPI print is read as a signal about the next rate decision. Rate expectations drive the currency, bond yields and equity valuations at once. See how interest rates work and how inflation affects stocks, currencies, commodities and bonds.

What moves the price is the surprise against consensus. A print that matches the forecast is already in the price; see why markets move before economic data is released.

Worked Example: Reading a Release

Consensus: headline 0.3% MoM, core 0.3% MoM. Actual: headline 0.3%, core 0.5%.

The components decided the move. Traders watching the headline saw a non-event and then a large reaction.

(Illustrative.)

CPI and PCE

In the US the Federal Reserve's preferred gauge is the PCE price index, which uses a broader basket and updated weights and typically runs a little below CPI. CPI is released first and moves markets more; PCE confirms. Other economies use their own indices — HICP in the euro area, CPI in the UK — on the same principle. See what is the Federal Reserve.

For Traders

• CPI is on the economic calendar as a high-impact event for the currency concerned and, for US CPI, for almost everything.
• Gold, indices and dollar pairs all respond to US CPI; a portfolio of the three is one exposure on release day. See correlated positions.
• Spreads widen and slippage rises in the seconds around release.

When is US CPI released?

Monthly, on a date published in advance by the Bureau of Labor Statistics, at 08:30 Eastern Time — 13:30 or 12:30 UTC depending on daylight saving.

What is core CPI?

The index excluding food and energy. It shows the underlying trend that policy can influence.

Why did markets move on an in-line CPI?

Usually because core differed from headline, the monthly figure implied a different trajectory, or the market had been positioned away from consensus.

Is CPI the same as inflation?

CPI is one measure of inflation — the change in a consumer basket. Other measures include PCE and producer prices.

Which matters more, headline or core?

For markets, usually core, because central banks watch it. Headline matters when energy or food moves are large enough to feed into expectations.

Related Reading

What is inflation · How interest rates work · What is the Federal Reserve · How inflation affects markets · How to use an economic calendar