Country consumer price index |
Fundamental statistics can have a relatively serious impact on the stock, commodity and foreign exchange markets. And let it be of a local short-term nature (the market wins back a similar publication of statistics in a few hours or even faster), for scalpers it is an opportunity to earn money, for novice traders it is a signal to temporarily suspend trading, for other traders it is a source of information for a more detailed analysis.
What is CPI
CPI (Country Consumer Price Index) is an index calculated for a fixed group of goods that make up the consumer basket of an average citizen of a country for a fixed period of time. Each country has its own approach to calculating the indicator, although the general procedure for generating statistics is recommended by the IMF, EBRD and UN. For example, in the United States, the cost of about 300 goods and services in 85 major cities is taken as a basis. In Great Britain – about 350, in Germany – about 475 goods. In Russia, the calculation methodology is approved by law (although it is regularly revised), the consumer basket includes just over 150 goods and services.
Comparison of the country’s consumer price index for the current year takes place in relation to the base one (that is, to the reference one taken as a basis, where prices were the most stable).
Problems of calculating and interpreting the indicator:
- The value of the index is very approximate, since it is possible to argue for a long time about the composition of the consumer basket, the volume of goods and which year and by what criteria to call the base one.
- There is no single calculation method. If the consumer basket is based on the minimum vital quantity of goods, then the indicator value will be lower and the increase in labor remuneration (associated with the CPI indicator) will not compensate for the real growth of inflation.
- The state can artificially adjust the index. For example, by setting a price bar for individual goods or creating an artificial demand for the state reserve. The indicator will not fully reflect the real state of the economy.
- The indicator shows only quantitative change, which does not take into account quality change. For example, if the base year for 2018 is 2010, then the computer taken into account in the indicator will have different technical characteristics (for 8 years, technologists have gone far ahead).
The lack of a unified approach to calculating the indicator and the error of statistics (prices for goods are different depending on the region) led to the fact that several methods for determining the indicator were created:
- Low’s index. The technique was developed in 1823 and, despite the changes introduced, still exists. Allows you to evaluate the cart from any number of products. Sets of goods can be presented both in arithmetic mean and geometric mean.
- Laispers index and Paasche index. They are used less often and only in those cases when it is necessary to accurately indicate the amount of actual expenses of economic entities.
Compared to the discount rate and NFP, it has a much less significant impact on the markets. But it belongs to the basic ones. For example, on its basis, the recalculation of wages or social benefits is carried out. In the USA, the indicator is published 15 times a month.
The growth of the indicator values suggests that rising prices reduce purchasing power and accelerate inflation. Therefore, for developing countries, this is rather a negative trend. For developed countries, the situation is different. For example, in Japan, the country’s leadership, on the contrary, is trying to accelerate inflation, and here the growth of the indicator will be viewed by investors as a positive signal. When the CPI is below 0, it means deflation.