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The levels of inflation that are experienced within a particular country are of a high interest to forex traders. The reason for this is that the major tools for regulating inflation levels are interest rates changes. A change in the interest rate is directly reflected in the value of the local currency.
Some of the most important indicators that are used to measure inflation rates include:
- Gross Domestic Product (GDP)The GDP is a great measure of a country’s growth, and indicates possible future movements of inflation levels.
- Producer Price Index (PPI)Monitoring manufacturing prices is a great way for detecting a change in the inflation levels, which is why the Producer Price Index serves as an inflation indicator for forex traders. Data for this index is gathered from such industries as agriculture, manufacturing and mining. A fixed basket of around 3400 commodities is used in order to measure their average price level.
- Consumer Price Index (CPI)While the PPI measures prices at the producer level, the CPI measures them from the perspective of consumers. The calculations of the CPI are based on a fixed basket of goods and services and reflect the changes that have occurred in this basket. The data that is used for the calculation of the CPI is gathered from a sample of prices of items that are purchased by consumers on daily basis, such as food, clothing, medical services, transportation and fuel.Changes in this index reflect the inflationary pressures surrounding the economy and therefore are helpful to forex traders in determining the inflation levels experienced by a country.
- Commodity Research Bureau’s (CRB) Futures IndexThis index greatly facilitates the examination of the inflation trends, though it is less reliable for evaluating general inflation rates, since food goods constitute a big portion of it. The futures prices of 21 commodities that are equally weighted (such as gold, silver, heating oil, lumber, wheat, corn, cattle, coffee, and others) are included in the CRB Index.
