Consumer Price Index

Consumer Price Index (CPI)

Source: Department of Labor

Frequency: Monthly

Availability: Two to three weeks following the reported month

Possible Impact on Interest Rates: Larger-than-expected monthly increase or increasing trend is considered inflationary, causing bond prices to drop and yields and interest rates to rise

Current Data Reported April 14, 1999: Current Data Reported April 14, 1999: This morning's consumer inflation report came in much worse than expected with the index rising at the fastest level in five years. The CPI jumped 0.7% in March, bringing the annualized rate to a strong 3.7%. Excluding the volatile food and energy prices, the CPI rose a strong 0.4%, resulting in an annual rate o 2.4%. In addition to the sharp rise in energy prices, which was also seen at the producer level, housing costs rose 0.4% and medical care costs were up 0.5%. The real concern here is the increase at the core level, which has trended upward by a half percent in the past two months. See "Overview" below for more information.

Overview: The consumer price index (CPI) is considered the most important measure of inflation. It compares prices for a fixed-list of goods and services to a base period. Currently, the base period, which equals 100, is the average prices that existed between 1982-1984.

The CPI categories and respective weightings are:

Housing 42%
Food 18%
Transportation 17%
Medical Care 6%
Apparel 6%
Entertainment 4%
Other 7%

Unlike other measures of inflation, which only cover domestically-produced goods, the CPI covers imported goods, which are becoming increasingly important to the U.S. economy. The one drawback to the CPI is its small sample size.

Analysts focus on the "core" CPI, which excludes the volatile food and energy sectors. The core index is considered a more accurate measure of the underlying rate of inflation.

The bond market is very sensitive to changes in the CPI that exceed expectations. For example, a higher-than-expected CPI can cause bond prices to fall and yields to rise. Likewise, a lower-than-expected figure is bullish for the market, causing the bond to gain and yields to fall.