Other Influential Indicators
This Indicator measures the average price level of a fixed basket of goods and services purchased by consumers, and monthly changes in this indicator represents the rate of inflation. Seeing that the CPI measures a countries inflation, knowing what the number is and how it influences the markets gives the individual investor a good edge. Inflation represents a general increase in the price of goods and services, and the relationship between inflation and Interest rates is the key to understanding how data such as the CPI indicator can influence the market.
Example:
If you borrow $ 200 from person A with a promise to repay this amount one year from today, you would have to pay interest on this amount, which will be worked out on inflation seeing that $ 200 will not buy the same amount of goods in a years time. If for example the US CPI shows that prices are rising at 2% a year, you would have to pay interest of 2% on the $ 200 borrowed. As the rate of inflation changes, interest rates will be adjusted accordingly, and this effect will be felt throughout the markets.
This report indicates and reflects the total receipts from all retail stores in a country and is derived from a diverse sample of retail sales throughout a nation. What makes this report so useful is the fact that it is a broad indicator of the consumer spending patterns and is adjusted seasonal variables. It can be used in conjunction with other lagging indicators to assess the immediate direction of the economy.
The Producer Price Index measures the prices at the first stage of distribution or where the first transaction takes place. Prices of domestically produced and imported goods are measured when they either leave the factory, or arrive in a country. The PPI reveals cost pressures affecting production as it measures the cost of production. With this monthly indicator the focus is on percentage changes and between the level of prices and the rate of increase. If the rate of increase declines but remains positive, it means prices are still increasing. PPI and CPI tends to follow the same trend, and it is most likely to have an impact on interest rates, bond prices, shares and exchange rates.
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