The Consumer Price Index and Investors

Many investors use the Bureau of Labor Statistics' Consumer Price Index to monitor the U.S. economy and make investing decisions based on its changes. The Consumer Price Index (CPI) is an important gauge of U.S. prices. It ✅provides a monthly indication of general price movements—in other words, inflation.

The U.S. Department of Labor's 澳洲幸运5官方开奖结果体彩网:Bureau of Labor Statistics (BLS) releases the CPI data eꦕach month during the second week of the following month, though the precise date varies. A is available on the BLS website, and the next release date is stated in each .

According to the BLS, the CPI "measures inflation as experienced by consumers in their day-to-day living expenses." The index tracks price changes paid for a representative consumer goods and services basket.

The CPI report is widely watched; inflation plays a significant role in economic decision-making, and influences cost-of-living adjustment (COLA) updates that 澳洲幸运5官方开奖结果体彩网:boost Social Security payments. Individual investors can also benefit from a close examination of consumer price trends.

How the Consumer Price Index Is Constructed

The consumer price index is one of the most widely used inflation measurements. There are a few different CPI metrics, but the most common is the "Consumer Price Index, All Urban Consumers," a category that covers 93% of the U.S. population. That index is called CPI-U and is often referred 🎃to as "headline inflation" because it is the figure most often quoted by media sources.

A subset covering 29% of the U.S. population, known as CPI-W, tracks price changes for urban wage earners and clerical workers. It is used to determine the 澳洲幸运5官方开奖结果体彩网:cost-of-living adjustment for recipients of Social Security and other federal benefits.

Headline CPI is based on the prices of about 80,000 goods and services collected monthly in 75 urban areas from 23,000 retail outlets, service providers, and 6,000 rental housing units. The BLS groups the price data by 211 product and service categories and adjusts each category's relative weight in the index annually (previously every 2 years before the 2023 update) based on recent consumer spending patterns.

The CPI uses a commodity and services survey that gathers about 94,000 monthly prices. Approximately two-thirds are collected by survey workers during visits to stores and other establishments. Prices for some product categories, notably gasoline and other motor fuels, come from outside data providers. Housing, which accounts for more than 44% of the overall CPI, uses rental price data from a separate survey to estimate housing rents as well as the value of shelter for homeowners.

Some of the Ways CPI Is Used

The CPI-W is used to index cost-of-living adjustments for more than 72 million Social Security and Supplemental Security Income beneficiaries. The Supplemental Nutrition Assistance Program (also known as SNAP or food stamps) also uses the CPI to make adjustments for the more than 41 million recipients of federal aid.

The index affects payments to millions of military and federal civilian members and retirees and the pay of workers covered by collective bargaining agreements with cost-of-living adjustments. In addition, CPI-W is used to adjust income tax brackets to prevent bracket creep and set the cost of school lunches.

CPI data is used to adjust for the effects of inflation in the data series on 澳洲幸运5官方开奖结果体彩网:retail sales, hourly and weekly earnings, and the national income and product accoun🤪t⛦s.

Using the CPI As an Inflation Hedge

Excessive inflation threatens🍸 economic ♛growth and can also hit the prices of financial assets like stocks and bonds.

Investors use the CPI to curb inflation risks with securities that benefit from it. While inflation hurts most fixed-income investments by eroding the present value of future interest payments, it's not an issue for 澳洲幸运5官方ꦜ开奖🧸结果体彩网:Treasury Inflation-Protected Securities (TIPS), which are sold by the U.S. government and adjust their coupon payments based on changes in the CPI.

Sophisticated investors seeking to profit from inflation or simply hedge it can also purchase an 澳洲幸运5官方开奖结果体彩网:inflation swap, a 澳洲幸运5官方开奖结果体彩网:derivatives contract providing for payments based on changes in the CPI. The pricing of such contracts can also shed light on consensus .

The Bottom Line

The CPI is among the most important and widely watched economic indicators, and it's the best-known inflation measure. The CPI is used to adjust wages, retirement benefits, tax brackets, and other important economic indicators. Inflation-protected securities and derivatives contracts based on the CPI can help investors assess and control the risks of inflation and deflation.