The CPI (Monthly) measures the change in the average price level of the basket of goods and services purchased by households from month to month. This indicator is used to track inflation by comparing the prices of the same group of items in consecutive months. Key points about the M/M CPI include:
Calculation: The consumer price index (CPI) is calculated by taking price changes for each item in the basket of predefined goods and services. These elements are weighted according to their importance or share in consumer spending.
Important: It provides a timely indication of inflation trends, helping policymakers, economists, and investors make informed decisions. Central banks use CPI data to guide monetary policy, such as adjusting interest rates to control inflation.
Fallout: A rise in the consumer price index M/M indicates an increase in prices (inflation), which can erode purchasing power. A low consumer price index M/M indicates lower prices (deflation), which may indicate economic problems such as low consumer demand.
Volatility: Monthly and monthly changes can be more volatile than annual changes (Y/Y) due to short-term factors such as seasonal influences, supply disruptions, or temporary price shocks.
Adjustments Seasonal adjustments are often applied to the consumer price index M/M to remove the effects of seasonal patterns and provide a clearer view of underlying inflation trends. Monetary and government authorities use seasonally adjusted CPI data to make informed decisions about economic and monetary policies. This includes setting interest rates and other fiscal policies aimed at controlling inflation.
In general, the consumer price index M/M is an important economic indicator that reflects short-term inflationary trends and helps assess the immediate economic environment.
Analysis of the US CPI data for March and its impact on the currency market
The US Bureau of Labor Statistics (BLS) reported that inflation in the US, as measured by the change in the consumer price index (CPI), rose to 3.5% year-on-year in March from 3.2% in February. This reading came in higher than market expectations of 3.4%.
The annual core consumer price index, which excludes volatile food and energy prices, rose 3.8% in the same period, matching the increase recorded in February. On a monthly basis, the CPI and core CPI rose 0.4%, compared to analysts’ estimates of 0.3%.
The Bureau of Labor Statistics noted in its press release that “the shelter index rose in March, as did the gasoline index. Together, these two indices contributed more than half of the monthly increase in the index for all items.” “The energy index rose 1.1% during the month. The food index rose 0.1% in March. The home food index was unchanged, while the away from home index increased by 0.3% during the month.”
Market Reaction to US CPI Data
The US dollar gathered its strength against its major rivals with an immediate reaction. At the time of writing, the US dollar index was up 0.55% on the day at 104.70.
There is a percentage change in the US dollar (USD) against the major currencies listed today. The US dollar was the strongest against the Australian dollar.
Market situation suggests that the US dollar is at risk in two directions ahead of the release of inflation data. Should the monthly core CPI rise 0.4% or more, this could give investors’ confidence that the Fed will remain the same in June, especially after the impressive labor market data for March. In this scenario, the USD is likely to gather strength against rival major currencies with immediate reaction.
Canadian CPI Analysis: Inflation slows in April 2024
The Consumer Price Index (CPI) rose 2.7% year-on-year in April, down from gains of 2.9% in March. The broad-based slowdown in the headline CPI was driven by prices for food, services and durable goods.
The slowdown in the CPI was mitigated by gasoline prices, which rose faster in April (+6.1%) compared to March (+4.5%). Excluding gasoline, the CPI for all items slowed to a 2.5% year-on-year increase, down from a gain of 2.8% in March.
On a monthly basis, the consumer price index rose 0.5% in April, mainly driven by gasoline prices. On a seasonally adjusted monthly basis, the CPI rose 0.2% in April.
The growth in food prices purchased from restaurants also slowed year-on-year, rising by 4.3% in April 2024 after a 5.1% increase in March. The index was unchanged month-on-month in April, however, the 0.8% monthly increase since April 2023 broke with the 12-month movement and pressured the index lower.
Statistics Canada uses the strongest available nutritional data for the CPI
Food is the second largest major component of the Consumer Price Index (CPI). Based on expenditures for 2022, Canadians directed 16.65% of their household budget to food purchases, with food purchased from stores accounting for 11.04% of household budgets. Reflecting this importance, food price data is subject to a rigorous review process. Statistics Canada works with price experts and other national statistical organizations to ensure that the methods used to calculate the CPI are in line with international standards and better Practices.
Grocery prices are mostly determined using scanner data, also known as point-of-sale data, which is received directly from grocery retailers. Data scanner is the highest quality price data available and the gold standard for price collection. The CPI measures price changes based on a fixed basket of goods and services
The importance of seasonal adjustments to the consumer price index
Applying seasonal adjustments to the consumer price index (CPI) is important for the following reasons::
Provide a clearer view of core inflation: Seasonal adjustments eliminate the recurring effects of seasonal patterns, such as higher prices of fruits and vegetables in a particular class or increased clothing prices at the start of the school season. This helps to get a more accurate picture of core inflation that reflects real changes in prices without seasonal effects.
Improved comparison between time periods: By removing seasonal fluctuations, month-to-month data can be compared more accurately and effectively, making it easier to analyze price and inflationary trends over time.
Support for economic and political decision-making: Monetary and government authorities use seasonally adjusted CPI data to make informed decisions on economic and monetary policies. This includes setting interest rates and other fiscal policies aimed at controlling inflation.
Avoid misinterpretations: Without seasonal adjustments, temporary price changes may lead to misinterpretations of the economic situation, which may prompt inappropriate decisions. For example, rising prices due to the holiday season may be misinterpreted as persistent inflation.
Improving economic forecasts: Economic and predictive models rely on accurate data. Seasonal adjustments enhance the accuracy of these models by providing seasonally free data, contributing to improved accuracy of economic forecasts.
Thus, seasonal adjustments are an important tool for analyzing and understanding real changes in the CPI, which helps in making more accurate and effective economic decisions.
