This morning some really hot inflation data came in that sent yields rising and stock indices falling. So no matter what you trade, you’ve got to know WHEN these reports land and what they’re about so you can better navigate the potential volatility that follows.
CPI: Consumer Price Index
Inflation refers to the rate at which the prices of goods and services are increasing.
The Consumer Price Index, or CPI, measures changes in the prices consumers pay for a broad basket of goods and services such as housing, food, transportation, and medical care. It gives us a major read on whether inflation is heating up or cooling down.
Because inflation influences Federal Reserve interest rate policy, a surprise in CPI can rapidly change expectations for rates and move the broad stock markets like the S&P 500.
CPI is released monthly, generally during the following month at 8:30 a.m. Eastern. The exact dates vary by month, so you can keep tabs on the schedule through the U.S. Bureau of Labor Statistics (https://www.bls.gov/) or an economic calendar like Forex Factory (https://www.forexfactory.com/calendar).
The other thing I want you to think about is the market impact. If the CPI numbers come out beyond what was expected, whether worse (hotter inflation) or better (cooler inflation), that can really fuel stock moves. So it’s always important to know when this information is about to be released, especially if you are a day trader or scalper.
While this generally comes out on a Tuesday at 8:30 AM ET, you’ve got to stay on top of the calendars so that you’re not blindsided when it comes out on a Wednesday, like it did today October 14th. Here were the results:
- Core CPI m/m, Actual 0.3%, Forecast 0.2%, Previous 0.3%
- Core CPI y/y, Actual 2.6%, Forecast 2.5%, Previous 2.4%
- CPI m/m, Actual 0.6%, Forecast 0.6%, Previous 0.4%
- CPI y/y, Actual 3.7%, Forecast 3.6%, Previous 3.4%
PPI: Producer Price Index
PPI is different because it measures inflation from the producer’s perspective before focusing on prices paid by consumers. It can provide clues about inflationary pressure moving through the economy.
Rising producer prices can eventually contribute to higher consumer prices and influence expectations for Federal Reserve policy.
Remember this, though: a higher PPI isn’t automatically bearish, and a lower one isn’t automatically bullish.
The reaction of the market depends heavily on what the market expected and whether traders are currently more concerned about inflation versus interest rates or broader economic growth.
PPI is also released monthly by the U.S. Bureau of Labor Statistics, and is slated for tomorrow Thursday October 15th.
PCE: Personal Consumption Expenditures → Fed Favorite
Last but not least is PCE, or Personal Consumption Expenditures.
The Core PCE Price Index is the Federal Reserve’s preferred inflation gauge. It measures monthly price changes for consumer goods and services, excluding food and energy, to help show underlying inflation trends.
A higher reading may lead market participants to expect tighter monetary policy, while lower inflation readings can ease some of the pressure on interest rates.
Again, a lot of the market reaction comes down to how participants believe the Fed will read that PCE number.
PCE is also reported monthly, but by a different agency, the U.S. Bureau of Economic Analysis (https://www.bea.gov/).And even though CPI tends to get more media coverage, Core PCE carries more weight with the Fed.
So keep tabs on this one for sure. It usually reports later in the month a couple weeks after CPI and PPI. As of this blog writing, it’s scheduled for Thursday October 29th at (drumroll please) 8:30 AM Eastern. Note this will be the day AFTER the next Fed meeting Wednesday October 28th.
Now that you have these three metrics, what they measure, and why markets pay attention to them, you’ll be better set to navigate the inflation data that comes your way in your trading!
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