Inflation and CPI
Inflation is the rise in prices across an economy. CPI (Consumer Price Index) is its main measure: it tracks how much a typical basket of goods and services has gone up in price.
How it works
Each month a statistics agency compares prices for a basket of goods and services: food, housing, transport, phone plans and so on. The change over 12 months is the annual inflation rate. A separate core CPI excludes food and energy; it is less jumpy and shows the underlying trend better.
Interest rates depend on inflation. Many central banks, including the US Federal Reserve and the ECB, aim for inflation around 2%. When it runs above target, the bank tends to raise rates or keep them high, and the currency often strengthens. When it runs below, rate cuts become more likely.
Markets react not to the number itself but to how it compares with economists' forecasts. The US CPI release is one of the most volatile events of the month for the dollar, gold, stock indices and crypto: spreads widen and price can swing hard both ways.
US annual CPI is forecast at 3.0% and comes in at 3.4%. Inflation beat expectations, so markets price a tougher Fed: the dollar usually rises, while gold and risk assets often fall. If it came in at 2.7%, the reaction would more often be the opposite.
A common mistake is opening a trade seconds before CPI trying to guess the number. At that moment spreads widen, slippage is large, and price often whips one way then the other and hits both stops. If you do not know how to trade news, close or reduce positions beforehand and wait for the market to settle.
Questions and answers
What is CPI in simple terms?
It is an index showing how much people's typical purchases have gone up in price over a period. It is the standard gauge of inflation.
Why does CPI move the US dollar?
High inflation pushes the Fed to keep rates higher, and higher rates usually support the dollar.
What is the difference between CPI and core CPI?
Core CPI leaves out food and energy, whose prices swing a lot. That makes it a better guide to persistent inflation.
Related terms
Read next
Four ideas you need to read any forex quote.
Read →How to choose a forex broker: a beginner's checklistA broker holds your money and executes your trades, so choose one for safety, not for bonuses. Here is what to check, in order.
Read →LotA lot is the standard unit of trade size in forex. One standard lot is 100,000 units of the base currency, a mini lot…
Partner links are marked. If you sign up through them, we may earn a commission at no cost to you. Details
Updated: 2026-10-19