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| Consumer shortage in Markets |
🙋♂️Hello dear readers. If you are interested in fundamental analysis, this article is just for you. This type of analysis deals with the field of economics. While discussing the development of countries, the concept of inflation also comes into play alongside the need for economic growth. When we say that the economy needs to grow for states to develop, we come across the concept of inflation.
❓ So what is inflation?
💥Inflation refers to the continuous and significant increase
in the general level of prices. This indicates that the prices of goods and
services, in general, are consistently rising. Inflation implies that nominal
national income is increasing in relation to real national income, meaning that
with the same amount of income, less goods or services can be purchased.
Significant increases and decreases in price levels are also indicators of
inflation. Therefore, inflation is an economic term that generally represents
the situation of prices of goods and services continuously rising.
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| Feeling the effects of Inflation |
❓ What are the main causes of inflation?
Inflation is caused by basic factors such as the inability
of the supply of goods and services to keep up with the increase in demand, the
increase in the prices of production inputs and the decrease in total supply,
and the result of people increasing their prices in advance according to their
expectations of future inflation.
❓ What are the methods of calculating inflation?
🧮To calculate inflation, two different price indices are
primarily used:🏭 the Producer Price Index (PPI) and 🛒the Consumer Price
Index (CPI). The PPI measures the changes in prices of goods produced by
the producers, while the CPI examines the weighted average changes in prices of
goods and services purchased by consumers. To determine the level of inflation,
the results of these two indicators, CPI and PPI, are examined, and inflation
is calculated. In other words, the calculation methods of inflation rely on the
use of CPI and PPI indices, which measure the changes in prices of relevant
goods and services.
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| Consumer Price Index (CPI). Source of image: TUIK |
✍In this article, I will try to present information about the
Consumer Price Index (CPI) and its effects 📊in the Forex market. The
Consumer Price Index (CPI) is a type of index that measures price changes of
goods and services purchased by consumers. This index is used as an indicator
of inflation reflecting price changes in 🧂goods and 🍴services.
The Consumer Price Index (CPI) provides information about
the level of inflation in a country, and the increase⬆ or decrease⬇ in the CPI is
directly related to inflation. In the calculation of CPI, essential goods and
services are taken into account, while factors with continuously changing
prices and not included in the list of basic needs are disregarded. The
calculation of CPI is done by considering the share of consumer expenditures in
inflation. Increases in CPI rates can often lead to higher interest rates and a
strengthening of the currency in the markets. Additionally, CPI signals the
possibility of significant price increases. CPI data is typically published and
shared with investors in the first two weeks of each month 📅on the economic
calendar.
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| CPI annual rate of changes in main groups (%) in Turkey. Source of image: TUIK |
In addition to CPI, the CPI rate also plays an important
role in calculating annual inflation data. CPI holds a significant position
among the price index data that reflects 🛒the purchasing power of producers or
consumers. It represents an average measure of price changes in a specific
group of goods and services, indicating the changes in consumer prices. CPI is
a key indicator used in economic analysis to measure price changes. The CPI
index starts at 100 based on a chosen base year and increases or decreases in
subsequent years based on price changes. 🧮The calculation of CPI demonstrates the
impact of price changes on consumer expenditures. Thus, increases or decreases
in the CPI index can reflect changes in consumer purchasing power. CPI is an
essential tool for making economic decisions, analyzing the effects of
inflation, and shaping policies. Businesses, investors, and governments attempt
to understand economic trends and predict future inflation expectations by
considering CPI data. Regular monitoring of CPI is crucial for ensuring
economic stability and 🤜combating inflation.🤺
When CPI data is released, markets are characterized by
extreme volatility, sudden price movements, increased volatility and liquidity.
If a trader opens a position ⏳during this time, there may be a need for ❌a stop
loss. Additionally, CPI data can influence 🏦central banks' monetary policies.
Positive or negative CPI data also impacts expectations regarding interest
rates, monetary policy, and currency value. When the data is announced, it is
necessary to consider these factors when making trades.👀 Let's look at the following
examples of market price changes when CPI data is released:
Before the Consumer Price Index (CPI) data is released:
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| US CPI and Core CPI Data Coming Soon in Economic Calendar |
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| EUR/USD Chart: US CPI and Core CPI Data Release Impact Awaited |
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| Gold Chart: US CPI and Core CPI Data Release Impact Awaited |
After the release of the Consumer Price Index (CPI) data:
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| US CPI and Core CPI data were announced below expectations. |
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| EUR/USD Pair Reacts to Below-Expected US CPI and Core CPI Data |
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| Lower-than-expected US CPI and Core CPI data drive Gold prices up. |