CPI

Tracks how fast consumer prices are rising \u2014 a key inflation gauge. The Fed targets 2% PCE inflation (not CPI). CPI runs 0.3-0.5% above PCE. Above 3% persistently usually triggers rate hikes.

Why it matters

The primary measure of inflation that drives Federal Reserve policy. Higher-than-expected CPI can trigger rate hikes, while lower-than-expected can enable cuts. Inflation erodes purchasing power and affects the discount rate used to value all financial assets.

How to read it

The Fed targets 2% PCE inflation — CPI typically runs 0.3-0.5% above PCE, so 2.3-2.5% CPI is roughly consistent with the Fed's target. Persistent readings above 3% tend to trigger tightening. Month-over-month changes matter most for market reactions. Core CPI (excluding food and energy) gets the most attention, though the Fed officially targets Core PCE.

Lessons that use this term

• Inflation: Why Your Cash Quietly Loses Value
• Inflation and the Cost of Holding Cash

Related terms

10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods

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