Financial Markets
Financial market prices can be influenced by a variety of factors. The Consumer Price Index (CPI) is one of these factors, as the Federal Reserve’s responses can have a direct impact on economic growth, corporate profits, and consumer purchasing power.
A rise in the CPI typically suggests that government policies are more relaxed. This can lead to easier access to debt at lower costs and increased spending ability for individuals. Conversely, a lower or declining CPI may signal potential government policy adjustments aimed at stimulating economic growth.
The CPI and its parts are also utilized as a deflator for various economic indicators, such as retail sales and hourly/weekly earnings, to distinguish between essential changes and changes caused by price fluctuations. When it comes to asking for a raise based on nationwide labor rate increases and pricing, employees might refer to CPI reports. However, it’s important to note that the CPI is based on national data, and employees may find it more helpful to consider local data for a clearer understanding of their own circumstances. Furthermore, workers who are covered by collective bargaining agreements may have their wages linked to CPI changes.
- The CPI and unemployment rates don’t always move in the same direction. The Federal Reserve tries to balance them out, like during the COVID-19 pandemic when they took steps to boost the economy.
- Due to the spike in CPI, the Federal Reserve started increasing interest rates and scaling back on asset purchases. These actions are meant to control economic growth and make borrowing more costly for consumers.
