ANSWERS: 4
  • Answering my own question! Um, the CPI is calculated every quarterly period and a percentage change is then calculated by the difference in the CPI to the CPI of the previous quarter. This percentage difference is the inflation
  • So in essence you are saying that the CPI doesn't affect inflation it is a measure of inflation.
  • CPI CAN affect inflation by inaccurately overestimating or underestimating inflation levels, thereby causing consumer sentiment. Changes in CPI are used to assess price changes associated with the cost of living. In this instant information age, this can cause market swings and push inflation further without accurate cause.
  • Inflation is not good for an economy, as rising inflation often makes it harder for consumers in a nation to buy even basic goods, meaning there is less free money for retail sales and spurring economic growth. The CPI report shows how heavily inflation is affecting a nation, and inflation doesn't just strike an economy that is struggling - in fact inflation can crop up in a booming economy that is growing too fast without any checks or balances! This is why inflation needs to be measured aside from other economic indicators. For example, in an economy that started booming, similar to the way China has grown in recent years, more people make more money. They start buying more. Stores not directly affected notice this, and raise their prices. So the workers demand more money, the company pays more money, and the stores keep raising prices. Without any checks or balances, this economic boom can send the inflation through the roof. A CPI report can show this, and encourage the government and federal banks to counter. The CPI can sometimes be affected by a large hike in price of one commodity. For example, the huge jump in oil prices in the United States. This affects transportation, heating, food, and cuts into retail sales because of the squeeze on workers' budgets. In that case, one major commodity jumping in price created a domino effect that the CPI would alert traders and investors to. The CPI will give you critical information about a nation and its economy that can translate to directly affecting a nation's currency in the Forex market.

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