CPI now: How to trade the latest CPI figures

14 April 2023

The Fed’s March CPI release has been hyping all day on financial media, and every smart trader has been preparing to react to the latest data. Let's brush through how the latest CPI report will affect markets in the coming days and weeks. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers.

The CPI consists of a bundle of commonly purchased goods and services and measures the changes in the purchasing power of a country’s currency.

The bottom line

So following the release of the CPI today, what we're seeing is what economists anticipated. Gasoline prices are down 4.6%, and natural gas prices, now that the winter is over, down 7.1%. We also see enthusiasm in equity market futures with a three-quarters of 1% boost on the S&P 500, after being virtually unchanged for some time. Core inflation is down from the month before, a lot softer than the previous month, and a surprise relative to expectations. 

If you look at the last three months, the core rate was up 0.4% and if you look at the last three months, you're still running an annualized rate of close to 5%. The good news is that the rent component should continue to put downward pressure on inflation, but we're still a long way from the 2% figure everyone is calling “safe.” The Fed clearly wants to price out the potential for further rate hikes, and possibly a rate-cutting cycle to start in the second half of the year.

The overall message coming from the Fed is that the US economy is not facing greater struggles and that all is well in the bond and stock markets. That might be true, but it could also be a nation desperately trying to avoid a bank run of USD bonds and securities. We will also know the answer to that soon enough.

So how should you trade? Cautiously, definitely cautiously. The CPI didn’t have a magic spell that will fix the Fed’s underlying weaknesses, nor did it confirm a crumbling economy. Stocks may rise in the coming days, but be tight with a stop loss. If the support drops, prices could tank fast.

In summary, a rise in the CPI by 0.4% may lead to inflationary pressure, changes in monetary policy, stock market volatility, and increased debt burden. If you trade anything related to USD, then take into account fundamental and geo-political influences with greater weight than what the charts say. Stay informed with Exness, and trade with a big-picture mind.

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