Financial
Terms and Concepts
Have you ever wondered what
the deal is with some of the terms and statistics that get floated
around in the media. On this page, you will find not the textbook
definition, but the way the term is recognized by professional financial
planners and advisors in the real world. In addition, whenever
possible, you will find out what the term or statistic means, and why
people care.
CPI or Consumer Price Index
The CPI is a widely followed indicator of inflation. Despite the simple sounding concept, it is
actually a complex statistic computed from a wide range of readings and inputs. It states, statistically,
the movement up or down of prices as they relate to a certain set of goods. The Core CPI is the same
statistic computed without the food and energy categories which are considered more volatile, and therefore
more likely to yank the reading up or down via exaggerated short term movements rather than long term
pricing trends. A rising CPI indicates increasing inflation. A decreasing CPI indicates deflation. As a
component of Federal Reserve Board policy, an increasing CPI increases the posssiblity of raising the interest
rates (or decreasing the possibility of cutting the rates). A decreasing CPI while signalling that inflation
is not currently happening is less likely to influence Federal Reserve Policy than other factors such
as economic growth data.
