Us CPI rose 7 per cent year-on-year in December 2021, the biggest increase since June 1982. As a result, the market expects the Fed to tighten its policy in 2022 to combat persistently high inflation.

How on earth is inflation monitored in the United States, which has attracted much attention from the market?

The market usually pays the most attention to CPI data in the United States. Today, let's take a look at what parts CPI is made of and how to interpret it.

What is CPI?

CPI, full name "Consumer Price Index", that is,Us Consumer Price Index.

What is usually reported is the consumer price index of urban consumers, or CPI-U for short, which is an important way to measure the change of purchasing trend and inflation in the United States from the perspective of consumers.

The index, released by the U.S. Department of Labor in the second or third week of each month, should be considered strong / bullish if it is higher than expected.

What are the components of CPI and which subdivision items are most concerned about?

CPI is made up of eight categories: food and beverage, housing, clothing, transportation, health, entertainment, education and communications, and other goods and services, which are often mentioned in recent reportsFood, clothing, housing, energy, transportation and health careThese six partsHowever, because food and energy are greatly affected by climate and seasonal factors and prices fluctuate greatly, what the market is most concerned about isThe core CPI of food and energy is deducted.

Take the newly released monthly CPI data of the United States as an example:

• The core CPI of food, energy and excluding both in CPIThe weights were 13.990%, 7.542% and 78.468% respectively, of which energy rose 29.3% from the same period last year.

• The core CPI is divided into two parts: goods and services.The weights are 20.768% and 57.700%, respectively.

• Core CPI products includeClothing, new cars, used cars, health care, beverages and othersThe biggest year-on-year increase was in second-hand cars (37.3%).According to media reports, the price of used cars has been the driving force behind soaring inflation during the outbreak as the supply chain restricts the production of new cars.

• Core CPI services includeHousing, health care and transportation, of which housing weight accounts for more than 32%.

CPI breakdown items are not constant, usually only once every two years, but it is also possible to make some statistical adjustments within two years. The Labor Department will update its metrics for new and used cars when it releases April data in May, according to Bloomberg.

What are the differences between CPI and PCE

Although the market is most concerned about CPI (Consumer Price Index), the Fed is most concerned about PCE (personal consumption Expenditure Price Index).

The Labor Department released CPI (2-3 weeks after the end of the statistical month) earlier than the U.S. Bureau of Economic Analysis (BEA) released PCE (4 weeks after the end of the statistical month). Generally speaking, CPI has an earlier and greater impact on the market.

CPI weights are based on household consumption surveys, and the Department of Labor (BLS) usually adjusts the consumption basket every two years according to changes in consumer behavior and preferences, while PCE weights are based on corporate sales surveys, which are more extensive and update data such as weights more frequently.