CPI Index: Measuring Inflation and Impact on Daily Life

What is CPI and Why Important?

The Consumer Price Index (CPI) measures average changes in prices of goods and services that consumers buy for daily use. This is the most common inflation indicator closely monitored by central banks, governments, and investors worldwide.

How CPI is Calculated and Consumer Basket

CPI is calculated based on a "basket" representing people's consumption habits, including food, beverages, housing, transportation, healthcare, recreation, education and other items. With the TramNgo FX-Crypto Community, we understand this basket composition is periodically adjusted to accurately reflect consumption reality.

Distinguishing CPI and Core CPI

There are two main types of CPI to note. Headline CPI includes all goods and services, while Core CPI excludes food and energy due to high volatility. Bob Volman taught me that Core CPI is usually preferred by central banks as it reflects underlying inflation trends.

Impact on Monetary Policy

CPI is the main tool that the Fed and other central banks use to make interest rate decisions. When CPI rises high, it usually signals inflation pressure and can lead to rate increases. Conversely, low CPI may cause central banks to cut rates to stimulate the economy.

Vietnam's CPI and Unique Characteristics