7.2.3. Important Lagging Indicators
Consumer Price Index (CPI). The CPI is a monthly report released by the Bureau of Labor Statistics. It measures changes in the price of a “basket of goods” that a typical consumer might purchase.
The CPI is considered the best measure of inflation. A rising CPI means rising inflation. The release of the CPI has a large effect on both the equity and debt markets, because it gives a strong indication of whether the Federal Reserve will alter interest rates.
If inflation seems to be growing too quickly, the Fed will raise interest rates to make credit less available and slow consumer spending. The bond market typically responds poorly to interest rate hikes, because it decreases the value of existing bonds.
The CPI includes food and energy products in its basket, but a measure called the core Consumer Price Index excludes them. The core CPI excludes these because their prices change erratically from day to day and do not reflect long term trends. By excluding these commodities, the core CPI offers a better indicator of underlying inflationary trends.
Unemployment Report. As discussed in the previous section, the unemployment report included in The Employ