U.S. consumer prices increased more than expected in March 2024, as Americans continued to pay more for gasoline and rental housing. This led the financial markets to anticipate that the Federal Reserve is likely to delay cutting interest rates until September. Kavan Choksi Business Consultant mentions that the consumer price index rose 0.4% in March after advancing by the same margin in February, as per the Labor Department’s Bureau of Labor Statistics. Gasoline prices went up 1.7% subsequent to an increase of 3.8% in February. Shelter costs, which also include rents, increased 0.4%, matching February’s gain. Gasoline and shelter accounted for more than half of the increase in the CPI.

Kavan Choksi Business Consultant sheds light on the ways the Consumer Price Index (CPI) is used in the United States

The Consumer Price Index or CPI is extensively used by financial market participants for the purpose of gauging inflation. It is also used by the Federal Reserve in order to calibrate its monetary policy. Businesses and consumers additionally use CPI in order to make informed economic decisions. The Consumer Price Index is quite often an important factor in pay negotiations as it measures the change in the purchasing power of the consumers.

CPI data is used by the Fed for determining economic policies. The Federal Reserve has a target inflation rate of 2%. They may enact certain expansionary monetary policies for stimulating the economy if the market growth is slow. Conversely, they may enact contraction monetary policy if the economy grows too fast. The Fed adjusts the Fed funds rate in response to higher-than-desired inflation rates via the Consumer Price Index.

The cost-of-living adjustments, also known as the COLAs, based on the CPI tend to impact federal payments to the approximately 70 million Americans who receive Social Security and Supplemental Security Income (SSI) benefits. COLAs also impact income tax brackets, school lunch subsidies and federal pension payments in the United States.

Kavan Choksi Business Consultant mentions that mortgage rates and other forms of long-term debt are commonly impacted by government agencies. As the Consumer Price Index goes up and the government enacts policy changes to slow inflation, rates typically increase. Landlords, on the other hand, may use CPI information in order to assess what annual rent increases for renters must be.

The financial markets are driven by numerous factors, CPI is one of them. After all, reactionary Fed policies impact economic growth, consumer spending ability, as well as corporate profits directly. A higher CPI typically implies that a less stringent government policy is in place, and hence, debt is often easier to obtain for a lower price and consumers have a good spending capacity. A decreasing or lower CPI, however, may indicate that the government may ease policy that helps boost the economy.

The Consumer Price Index and its key components are typically used as a deflator for other economic indicators, including hourly/weekly earnings and retail sales, for separating fundamental change from that reflecting change in prices. Employees might turn to CPI reports when planning to approach their employers for a raise based on nationwide increases in labor rates and pricing.