Consumer Price Index.

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

Consumer Price Index , abbreviated as CPI, is a measure of the cost of a basket of consumer goods and essential services. CPI is calculated based on price changes for each of the components of the basket, and the importance of a particular product in the consumer basket is also taken into account.

In addition, this index is also used in compiling the living wage, on which many other indicators in the social sphere and the economy are based.

An increase in the total cost of the consumer basket may indicate an increased level of inflation and usually has negative consequences both for the national currency and for 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 and is evidence of deflation.

The Consumer Price Index is often used as a signal to open transactions on the Forex currency exchange or stock market.

This is due to the fact that the exchange rate of the national currency and the prices of some stocks react quite sensitively to any changes in the consumer price index. Typically, when trading news trading , when the indicator decreases, transactions to buy a currency are opened, and when the value of the consumer basket increases, sell orders are opened.

This trading option looks more clear using a specific example.

From the Forex calendar we find out when the Consumer Price Index for the Euro will be published, and then we prepare for a transaction on the EUR/USD currency pair. If a message comes out about a decrease in the consumer price index, we open a buy deal, since the Euro is the base currency in the EUR/USD currency pair.