Lately, it seems the stock market has become obsessed with Consumer Price Index (CPI) reports, hanging on the release of every new report. You may be wondering why.
FIRST: WHAT THE CPI IS
The Bureau of Labor Statistics releases a CPI report each month. It’s based on price data collected over the month. The prices for the goods and services the BLS uses to calculate the index are collected from about 23,000 retail and service establishments in 75 urban areas throughout the US. Rent data comes from about 50,000 landlords or tenants. Weightings for items are set from reported expenditures as estimated by the Consumer Expenditure Survey.
IT’S ALL ABOUT INFLATION
The markets weren’t that sensitive to the CPI when inflation was low and steady. But since inflation reached a record high in 2022, the Federal Reserve repeatedly increased central bank rates, which affected the market. That’s because higher rates could cause the economy to fall into a recession, impacting the markets and investors’ returns. Your financial professional can suggest ways to diversify your investments to help minimize the effects of market volatility.