Consumer Price Index (Consumer Price Index).

Inflation has always been one of the most significant indicators of the stability of a national currency. The level of inflation can be assessed through an analysis of the consumer price index.

The Consumer Price Index ( CPI) is a measure of the cost of a basket of consumer goods and essential services. The CPI is calculated based on price changes for each component of the basket, taking into account the importance of each item in the basket.

Furthermore, this index is used to calculate the minimum subsistence level, which underlies many other social and economic indicators.

An increase in the overall cost of the consumer basket may indicate increased inflation and typically has negative consequences for both the national currency and the country's economy as a whole.

A decrease in the average cost of goods and services in the basket indicates a positive trend and strengthening of the national currency, but is indicative of deflation.

The Consumer Price Index is often used as a signal to open trades on the Forex or stock markets. This is because the national currency exchange rate and certain stock prices react quite sensitively to any changes in the Consumer Price Index.

Trading is typically based on news : when the index declines, buy orders are opened, and when the consumer basket value rises, sell orders are opened.

This trading approach is more clearly illustrated with a specific example.

We use the forex calendar to find out when the Consumer Price Index for the Euro will be released, and then prepare for a trade on the EUR/USD currency pair. If the Consumer Price Index is reported to be falling, we open a buy trade, as the Euro is the base currency in the EUR/USD currency pair.