CPI explained: headline and core inflation for forex traders

The consumer price index, or CPI, measures the change in prices paid by consumers for a basket of goods and services. Every major economy publishes one, and for currency traders it is one of the most important releases each month, because inflation drives central bank decisions.

Headline and core

• Headline CPI covers the whole basket, including food and energy.
• Core CPI removes food and energy, whose prices swing with weather, harvests and oil markets.

Central banks look at both, but markets often react more to core inflation, because it is a better guide to the underlying trend. When energy prices jump, the two can diverge sharply. In August 2026, US headline CPI was 3.4% on the year while core CPI was 2.4%, because gasoline prices were 27.4% higher than a year earlier.

Monthly and annual rates

Releases show the change on the previous month and on the same month a year earlier. Traders watch the monthly figures for signs of a change in trend. Annual rates can rise or fall because of base effects: a big price jump twelve months earlier dropping out of the calculation can pull the annual rate down even if prices are rising steadily now.

How CPI moves currencies

1. Higher-than-expected inflation raises the chance that the central bank keeps rates higher for longer, or raises them.
2. Expectations of higher rates tend to support the currency.
3. Lower-than-expected inflation tends to do the opposite.

The reaction depends on the surprise against the forecast, not on the level itself.

The US release

The US Bureau of Labor Statistics publishes CPI around the middle of each month at 8:30 a.m. New York time. Shelter costs are the largest single component and change slowly, which is one reason US core inflation is persistent.

The Federal Reserve's 2% inflation target is defined in terms of a different measure, the personal consumption expenditures (PCE) price index. CPI still moves markets more on the day, because it comes out first.

Elsewhere

• Euro area: Eurostat publishes a flash estimate of harmonised inflation (HICP) at the start of each month.
• UK: the Office for National Statistics publishes CPI and CPIH, which includes owner occupiers' housing costs.
• Japan, Canada and Australia each publish their own measures; Australia's main release is quarterly, with a monthly indicator.

All of them are listed with their forecasts on the economic calendar. For how the numbers feed through to exchange rates, see how interest rate decisions move currencies.