On 26th February Australian Bureau of Statistics will release the CPI y/y which Measures the Change in the price of goods and services purchased by consumers
What is CPI?
The Consumer Price Index (CPI) is a statistical measure that tracks changes in the prices of a basket of goods and services commonly purchased by households. It is a widely used indicator of inflation, which is the rate at which prices for goods and services are rising.
CPI is calculated as a weighted average of prices for a representative basket of goods and services. The weights reflect the relative importance of each item in consumer spending.
Data Collection: Prices are collected monthly from a sample of retail and service establishments. The data includes a wide range of items such as food, housing, clothing, and healthcare services.
Use: CPI is used to measure inflation, adjust wages and pensions for inflation, and inform monetary policy decisions.
How Does CPI Affect Monetary Policy?
CPI plays a crucial role in shaping monetary policy because it provides a direct measure of inflation, which is a key objective for central banks. Here’s how CPI influences monetary policy:
1. Interest Rate Decisions
Inflation Targeting: Central banks often have an inflation target (e.g., 2% in many countries). If CPI indicates that inflation is rising above this target, central banks may increase interest rates to curb inflation by reducing borrowing and spending.
Economic Stimulus: Conversely, if CPI shows inflation is below target or the economy is slowing, central banks might lower interest rates to stimulate economic growth by making borrowing cheaper.
2. Economic Growth and Stability
Growth Indicators: CPI helps policymakers assess the overall health of the economy. High inflation can erode purchasing power and reduce economic growth, while low inflation might indicate economic stagnation.Stability Measures: By monitoring CPI, central banks can implement policies to maintain economic stability, ensuring that inflation remains within acceptable limits without stifling growth
Changes in CPI can influence currency markets. Higher inflation might lead to a weaker currency as investors seek higher returns elsewhere, while low inflation could strengthen a currency by attracting investors seeking stable returns.
Consumer Price Index (CPI) Year-over-Year and Construction Work Done Quarter-over-Quarter releases might impact on EUR/AUD trade directional bias:
1. CPI Year-over-Year
Forecast: 2.6% (previous 2.5%)
Impact: A higher-than-expected CPI figure could indicate rising inflation, which might lead to expectations of less aggressive rate cuts by the Reserve Bank of Australia (RBA). This scenario could support the AUD, potentially weakening EUR/AUD.
Bias: Bearish for EUR/AUD if CPI exceeds forecasts.
2. Construction Work Done Quarter-over-Quarter
Forecast: 1.0% (previous 1.6%)
Impact: A decline in construction activity could signal economic slowdown, potentially weakening AUD. However, this indicator is generally less influential on currency markets compared to inflation data.
Bias: Mildly bullish for EUR/AUD if construction data disappoints significantly.
Overall Impact on EUR/AUD
Bullish Scenario for EUR/AUD: If the CPI figure is in line with or below expectations, and construction data shows a significant decline, EUR/AUD might rise.
Bearish Scenario for EUR/AUD: If CPI exceeds forecasts, indicating stronger inflation and potentially less RBA rate cuts, EUR/AUD could decline.
In summary, CPI is a critical tool for central banks to gauge inflation and make informed decisions about monetary policy, which in turn affects economic growth, interest rates, and currency values.
What is CPI?
The Consumer Price Index (CPI) is a statistical measure that tracks changes in the prices of a basket of goods and services commonly purchased by households. It is a widely used indicator of inflation, which is the rate at which prices for goods and services are rising.
CPI is calculated as a weighted average of prices for a representative basket of goods and services. The weights reflect the relative importance of each item in consumer spending.
Data Collection: Prices are collected monthly from a sample of retail and service establishments. The data includes a wide range of items such as food, housing, clothing, and healthcare services.
Use: CPI is used to measure inflation, adjust wages and pensions for inflation, and inform monetary policy decisions.
How Does CPI Affect Monetary Policy?
CPI plays a crucial role in shaping monetary policy because it provides a direct measure of inflation, which is a key objective for central banks. Here’s how CPI influences monetary policy:
1. Interest Rate Decisions
Inflation Targeting: Central banks often have an inflation target (e.g., 2% in many countries). If CPI indicates that inflation is rising above this target, central banks may increase interest rates to curb inflation by reducing borrowing and spending.
Economic Stimulus: Conversely, if CPI shows inflation is below target or the economy is slowing, central banks might lower interest rates to stimulate economic growth by making borrowing cheaper.
2. Economic Growth and Stability
Growth Indicators: CPI helps policymakers assess the overall health of the economy. High inflation can erode purchasing power and reduce economic growth, while low inflation might indicate economic stagnation.Stability Measures: By monitoring CPI, central banks can implement policies to maintain economic stability, ensuring that inflation remains within acceptable limits without stifling growth
Changes in CPI can influence currency markets. Higher inflation might lead to a weaker currency as investors seek higher returns elsewhere, while low inflation could strengthen a currency by attracting investors seeking stable returns.
Consumer Price Index (CPI) Year-over-Year and Construction Work Done Quarter-over-Quarter releases might impact on EUR/AUD trade directional bias:
1. CPI Year-over-Year
Forecast: 2.6% (previous 2.5%)
Impact: A higher-than-expected CPI figure could indicate rising inflation, which might lead to expectations of less aggressive rate cuts by the Reserve Bank of Australia (RBA). This scenario could support the AUD, potentially weakening EUR/AUD.
Bias: Bearish for EUR/AUD if CPI exceeds forecasts.
2. Construction Work Done Quarter-over-Quarter
Forecast: 1.0% (previous 1.6%)
Impact: A decline in construction activity could signal economic slowdown, potentially weakening AUD. However, this indicator is generally less influential on currency markets compared to inflation data.
Bias: Mildly bullish for EUR/AUD if construction data disappoints significantly.
Overall Impact on EUR/AUD
Bullish Scenario for EUR/AUD: If the CPI figure is in line with or below expectations, and construction data shows a significant decline, EUR/AUD might rise.
Bearish Scenario for EUR/AUD: If CPI exceeds forecasts, indicating stronger inflation and potentially less RBA rate cuts, EUR/AUD could decline.
In summary, CPI is a critical tool for central banks to gauge inflation and make informed decisions about monetary policy, which in turn affects economic growth, interest rates, and currency values.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.