The Consumer Price Index is one of the most important economic releases you as a trader can get your hands on. It essentially shows us how much the cost of living has increased or decreased in a period, which gives everyone a very solid indication of trends in a country’s economy. This index is a vital piece of data upon which whole monetary policies are based, so if you can access it you can predict a lot of moves a government is likely to make. To help you figure things out, we wrote this article in which our experts explain the basics of using this indicator. Therefore, if you want to know more about it, just keep reading!
Consumer Price Index CPI | What do you need to know?
Now, like we said, Consumer Price Index (also known as the CPI) shows the cost of living in a particular country. The elements included in it are things like food, education, recreation, medical care, transport etc – things people use on an everyday basis. You can see when each CPI is released from your Economic Calendar, so you can make prepare yourself and focus on the economy that you’re most familiar with. The importance of this indicator lies in the fact that we can clearly see how strong the inflation is from it. This, in turn, causes the most important financial institutions to react, which is what you can predict thanks to this index. But that’s the topic of our following paragraph.
Consumer Price Index CPI | How can it help you?
If the Consumer Price Index turns out to be significantly above what the central bank has predicted, the bank will increase the interest rates, which will lead to an increase in demand for that currency. Naturally, everybody wants to have in their possession a currency that yields high interest. This is when you want to start buying call options. Of course, the opposite is true as well – low CPI means lower interest rates, so buying put options in this situation is the way to go. In terms of percentages, anything above 2% is viewed as bad for the economy and the same goes for everything below 0, obviously, i.e. when deflation is happening. So when you’re constructing your Binary Options Strategy, always make sure you include this important economic indicator into it.
Consumer Price Index CPI | Conclusion
Consumer Price Index is published regularly by countries’ central financial institutions and it is a very good indicator of inflation. You can easily keep track of the CPIs for every major economy with the help of your economic calendar and then make a move once you get the necessary data. When the CPI is published it will trigger a chain reaction on the market, which means you can predict certain actions based on how big the index is. To learn more about what needs to be done, check out our other articles on this website and get more valuable tips from our experts.