CPI

In detail

CPI (Consumer Price Index) tracks the average change in prices consumers pay for a fixed basket of goods and services. It is the most-watched US inflation measure, published monthly by the Bureau of Labor Statistics, and it moves markets because it shapes what investors expect the Federal Reserve to do with interest rates. Two readings matter. Headline CPI covers the whole basket. Core CPI strips out food and energy, which are volatile for reasons that have little to do with underlying inflation, and is what policymakers watch more closely. Both are reported month-over-month and year-over-year; the year-over-year figure is the one usually quoted as "inflation". The market reaction is about the surprise, not the level. A hot reading relative to expectations tends to lift rate expectations and pressure valuations — particularly for long-duration growth stocks, whose value depends most on distant cash flows. A cool reading does the opposite. Worth knowing where it misleads: CPI measures a basket that matches no individual's actual spending, shelter costs enter with a substantial lag, and the index is revised. A single month is noise. The trend across several months is the signal.