Consumer Price Index (CPI) and Employment Growth
In the coming week, i.e. on the 10th of April 2024, the US Central Bank (United States Federal Reserve) is going to release important economic statistics i.e. Consumer Price Index (CPI). These data may have a big impact on the global economy as well as on the Indian economy.
In the last week Bureau of Labour Statistics published that the employment numbers have increased compared to the previous period. i.e. more than 300,000 jobs were added to the US economy last month and the unemployment rate fell to lower 3.8%.
It is important to see how it will affect the Indian stock market. Indian stock market is currently at its highest level. Looking at the direction of the stock markets in the last few months, Foreign Capital Markets and policies have not impacted much on the Indian stock market. On the other side, the Indian market has seen moving towards at its highest levels from time to time. So what are the important economic developments that we can see impacting the Indian stock market or the global stock market as a whole?
What is the Consumer Price Index (CPI)?
The CPI is a statistic that measures the change in the prices of retail goods and services. In simple words, it shows how much money you spend on daily shopping at the grocery store or elsewhere. If the CPI increases, inflation is considered to have increased.
What is the employment growth figure?
The employment growth figure shows how many new jobs were created during a particular period. High employment growth is good for the economy as it increases people’s purchasing power and strengthens the economy.
How do these statistics correlate?
Generally, CPI and employment growth are correlated. If employment growth increases, companies need more people, so they can raise wages. This increases the purchasing power and increases the demand for goods. If supply remains constant due to increased demand, prices are likely to rise (inflation).
The impact of these statistics on the global economy
America is the largest economy in the world. Therefore, US CPI and employment growth affect other countries.
High CPI: If the CPI increases in the US, inflation increases. This could affect other countries because imports of American goods could become more expensive. Also, global interest rates are likely to increase if the US Reserve Bank raises interest rates to curb inflation. This can reduce international fund flows and affect the economies of other countries.
High employment growth: If employment growth is good in the US, the purchasing power of its people increases. Therefore, the demand for the goods of American companies is likely to increase. This can be beneficial for exporting countries as they can export more.
Impact on other countries and the Indian Economy: US CPI and employment growth also affect other countries like India. If the CPI rises in the US, imports may become more expensive, thus likely to increase inflation in India.
How CPI (Consumer Price Index) is calculated?
Have you ever wondered what determines whether the economy is experiencing inflation or deflation?
The Consumer Price Index (CPI) is an important economic indicator. The CPI is an indicator used to measure inflation, which is the change in general price levels. In India and many other countries, it is calculated by the Central Statistical Office under the Ministry of Statistics and Programme Implementation. The CPI is based on a basket of goods and services used by consumers in their daily lives.
It measures a change in the price level over time by comparing the amount that consumers pay for this basket. In doing so, it considers the weighted average of the price change of the items in the basket based on their importance.
The CPI is calculated as follows: cost of the market basket in a given year divided by the cost of the market basket in the base year, multiplied by 100.
Suppose the price of a basket of goods containing milk, butter, medical care, and shirts is rupees 100 in 2012 (the base year). If the same basket costs rupees 120 in 2020, then inflation is said to be 20%.
Expectations ahead
The annual inflation rate in the US unexpectedly rose to 3.2% in February 2024, compared to 3.1% in January. Currently, the focus of the central bank is to bring the rate of inflation to 2%, but for that, some more positive things are expected to happen in the US economy.
FAQs
What is the Consumer Price Index (CPI)?
The CPI is a calculation of the data of how much the price of a basket of goods and services changes over time. In simpler terms, it reflects changes in your everyday shopping expenses. A rising CPI indicates inflation.
We recently saw strong employment growth figures in the US. How are these connected to CPI?
Generally, CPI and employment growth are correlated. High employment can lead to increased wages, boosting purchasing power and potentially driving up demand for goods. If supply remains constant, prices may rise (inflation).
How is CPI calculated?
The CPI tracks the price changes of a representative basket of goods and services. It compares the cost of this basket in a given year to its cost in a base year. The percentage change reflects the inflation rate.
