Trade Desk Thoughts - US CPI

CPI (Sep) Actual 0.0%, Expected 0.2%, Previous 0.2%

Core CPI (Sep) Actual 0.1%, Expected 0.1%, Previous 0.2%

Release Explanation: The CPI measures the average price of a fixed market basket of goods and services purchased by consumers, and therefore gives an overall read of inflationary pressures. It is the most widely used Inflation indicator of central banks, institutions, and governments. It is used to calculate cost of living numbers for government programs. Each regional central bank will have their own CPI target rate, and each will differ in line with the way they individually want to control the aspects of their own economies.

It can sometimes overstate inflation because it does not reflect price changes in new technology goods which are often declining in price as new innovations come into the market. Despite these criticisms, it remains the benchmark inflation index worldwide. CPI can be greatly influenced in any given month by movement in volatile food and energy prices, and therefore it is important to look at CPI excluding food and energy, commonly called the “core rate" of inflation.

Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new car sales. In addition to tracking the month over month (m/m), the year over year (y/y) change in core CPI is seen by economists as the most reliable read of the underlying inflation rate.

This is the "be all and end all" of economic releases. This report sets the tone for economic growth or contraction, and therefore eventually effects most other releases. The gauge of inflation is a report that moves markets because it gives a central bank the information they need to make rate decisions. This therefore is a big market mover as institutions adjust existing or planned positions in response to the rate of inflation and its impact on a currency, i.e. CPI higher, currency appreciation, CPI lower, currency depreciation.

Trade Desk Thoughts: The CPI was unchanged in September after falling 0.1% in August. For the year, the CPI was 4.9% after rising by 5.4% in August. The core rate was 0.1%, decelerating for the second straight month. The energy index fell 1.9% in September following a 3.1% decline in August.

"During his speech yesterday, Mr. Bernanke promised the Fed would continue to use "all tools," said Matthew Carniol, chief currency strategist at TheLFB-forex.com. "Since they are more worried about deflation rather than inflation at this time, there's a strong possibility to see another 25 basis points of easing later this month."

Forex Technical Reaction: S&P futures jumped after the morning's reports, and were recently trading 2.52% higher. USD/JPY rose with the futures as did EUR/USD and GBP/USD, a sign that traders were buying risk.

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