CPI Effects on the Financial Market

May 25, 2024

Overview

The CPI measures inflation, affecting interest rates: high CPI raises rates, reducing investments; low CPI lowers rates, boosting investments.

2 min. read

2 min. read

2 min. read

Have you noticed that groceries tend to cost a bit more each year? That's due to inflation, and the CPI tracks how much those prices are going up (or down, which is deflation). 

The Consumer Price Index (CPI) is important because governments rely on it to make economic decisions. It gauges the change in average prices that U.S. consumers pay for everyday goods and services like groceries, gas, and rent.

Effect on low/high interests in the financial markets

Examples of higher interest rates on the financial markets:

  • Less cash to invest: Everyday expenses like groceries, or rent take a bigger bite out of a consumer’s wallet, leaving less money to buy stocks, crypto, and other financial options.

  • Borrowing gets expensive: Loans become pricier, making it tougher for financial institutions and big investors to jump in, which would cause lower financial market activities which also leads to lower demand.

Interest rates influence the spending and investment behaviors of both individuals and institutions. When interest rates are lower, it results in increased investments, as loans and other financial products become more affordable, making more money available for trading and investing.

The price reaction of BTC yesterday

With the positive news about the decrease in CPI from 0.4% in March to 0.3% in April, The price of Bitcoin (BTC), increased over 1%, reaching $63,700 following the Consumer Price Index report on Wednesday.

Disclaimer: The information provided in this research paper is for educational and informational purposes only. It does not constitute financial advice, investment guidance, or any solicitation to buy or sell financial instruments. The views expressed herein are those of the authors and do not necessarily reflect the opinions of Kollectiv.

2024