Why US CPI data is an indicator for economies around the world

US CPI data: The US Bureau of Labor Statistics released its March Consumer Price Index (CPI) data today. The data seems to be giving some respite to people in the US as it showed that inflation rose just 0.1 per cent in March and 5 per cent from a year ago. The new data presents the smallest 12-month increase since May 2021. Inflation in the US is down from 6 per cent achieved in February, and significantly lower than the last summer's peak of 9.1 per cent. 

Some of the important factors in the data are-- rents rose 0.5 per cent as housing costs turned out to be the largest contributor to the monthly price rise, Airfares (up 4 per cent), car insurance (up 1.2 per cent), household furnishings and new vehicles (both up 0.4 per cent).

However, prices went down in medical care and used car and trucks, where they declined 0.3 per cent and 0.9 per cent, respectively.  

The Fed uses CPI data to calibrate US monetary policy.

The Fed has raised interest rates nine times since March 2022 for a cumulative of 4.75 percentage points.

As per the new data, inflation has slowed down but is still not under control.

Consumer prices are well above normal, and labour market is still churning.

Average gas prices have gone down, but they can again shoot up given that Saudi Arabia and other leading oil producers have said they would slash oil output considerably.

With these factors hovering around, we still can't rule out a rate hike from the Fed.

Come what may in the Fed's next meeting in May, US CPI data impacts economies around the world since it is one of the most important indicators monitored by traders who trade in the US dollar.

The positive or negative data from the labor department can produce swings in the US dollar's value against other currencies in the world. 

If the US dollar improves against a foreign currency, traders in that country have to shell out more money to purchase goods in the international market, resulting in a rise in inflation in that country. 

The other big impact is how the US Fed reacts to it.

If CPI indicators are positive but inflation isn't under control, the Fed can go for a rate hike to cool down spending.

A rate hike in the US reverberates around the world as central banks around the world generally follow the course.

When these banks hike interest rates, borrowing of individuals and businesses contract, which can further affect the GDP of a nation. High rates can also affect the performance of companies who can cut down on their large labour force.