The Consumer Price Index

A Consumer Price Index (CPI) measures the changes in the value of a select range of goods and services paid by consumers in a specific period.

The rationale behind this exercise is to compare the cost of living over time in order to gauge the levels of inflation occurring within an economy.

Rising inflation often leads to higher interest rates, while deflation, or disinflation, often leads to lower interest rate rate environment. . This is why many investors pay close attention to the CPI of countries when making investment decisions.

It is important to remember however the CPI is a lagging indicator, meaning that it may not reflect present day inflation due to the fact that it is retrospectively published. Therefore, it is best utilised as one element of a broader analysis strategy.