CPI's Impact on Stocks, and How People Get Confused
We're going to release another piece about tomorrow's CPI data. But this one is to let you know about the significance of CPI and make sure you understand the news and reports about it.
Keep an eye on the market tomorrow, 11/10, for CPI’s impact on the market as it’s released.
We figured that since CPI is coming out tomorrow, we’d give a preface to the blizzard of news you might encounter.
The point of this piece is make sure that you never say something like “CPI is 0.3”. As we’ll repeat multiple times here, that is likely the change in CPI and not CPI itself. CPI itself has been above 200-something for over a decade. We can’t have our readers talking like this.
Context: CPI gives the Fed a reason to change the price of nearly free loans.
Sadly, that’s the gist CPI’s significance to the market right now. Investors want a status update on when the price of nearly free loans will increase. So everyone’s listening. They just want to know when to stop being super greedy — that’s pretty much it.
Investors have been given a lot of cheap loans (low interest rate bonds) as a result of their Quantitative Easing (QE) policy shift at the beginning of the pandemic in order to make sure banks have enough cash to cover their butts amidst a shaky pandemic economy. Now that we’ve clearly progressed from the Significant inflation metrics like CPI are used to make decisions about interest rates (read: prices) about the price of those loans.
The Press Reports CHANGE in CPI, but CPI itself is a much bigger number. It’s confusing, we know.
THIS is NOT CPI itself, as indicated by the word “increased”.
The photo above is a Bureau of Labor Statistics document about CPI that begins by stating the CHANGE in CPI. For some reason this number gets muddled with CPI itself in conversations though.
THIS is CPI.
CPI reports and readings are unnecessarily confusing. Every month there’s a new CPI report, and the media and investors focus on change in CPI rather than CPI itself.
The news always reports a number like 0.2 or 0.5, but this is actually the percent change in CPI since the last report in the previous month. These numbers are NOT CPI. CPI is much bigger as you just saw.
It’s also annoying that they don’t use the percentage symbol next to it. This leads people to say things like “CPI was 0.3 last month”, which is false on two levels: first, CPI isn’t 0.3, and second, that “0.3” is likely the percentage change in CPI. We digress.
Anyways, CPI is a much bigger number, and has been above 200-something for a while. Don’t get it confused with the change in CPI that we always see.