BlogIndicators

Price Indicators

I have grouped the second set of forex trading indicators into those called price indicators – there are many others but these are two of the most important in the forex trading calendar.

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  • Consumer Price Index

CPI in effect measures the change in consumer prices and covers a range of goods and services. This is one that governments like to distort, and CPI data is often broken up into CPI and core CPI, with the core number removing certain elements which are likely to be more volatile, such as energy and food products. As such, the Core CPI figure is supposed to provide a more accurate reflection of the longer term economic outlook, and whether the country is in an inflationary cycle, deflationary or relatively flat. The reason this forex trading indicator is so closely watched by the forex markets, is simply that the central banks will tend to use this as the basis of their interest rate decisions, which in turn will affect the currency rates in the forex markets, as one currency is then seen to be more attractive in terms of investment opportunities and is bought accordingly.

  • Producer Price Index

In contrast to the Consumer Price Index, the Producer Price Index ( PPI) concentrates on the price at the production level, as it measures the change in prices for finished goods and services. It is generally considered to be a leading indicator as higher prices at the factory gates are then passed on the consumer, and therfore PPI data has a lead time over the more signifncant CPI release which follows later. Whilst CPI is normally released on a quarterly basis, except in Canada where it is monthly, the PPI data is released monthly with a lag of around 16 days on the data, but nevertheless is generally considered to be a good guide to the CPI figures. If the actual are better than expected then this is generally good for the currency.

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