All modules
1.5 US Inflation Explained: CPI, PPI & PCE for Traders
The inflation releases traders follow, how to compare a print with what was expected, and how it reaches a stock position.
About this lecture
How does an inflation report reach your stock position? Through changing interest-rate expectations and the prices that shape a company's revenue and costs.
In this lecture, Pratham breaks down US inflation, the releases traders follow, and how to compare a new number with what the market expected.
You'll learn about:
- Demand, supply and expectations as sources of inflation
- Purchasing power, borrowing costs and company earnings
- Month-over-month versus year-over-year readings and the base effect
- CPI, PPI and PCE—and why their roles differ
- Headline, core and services inflation
- Consensus forecasts, the Cleveland Fed nowcast, breakevens and household expectations
- Reading the 2-year Treasury yield and index futures around a release
- Why the composition of a surprise and the trend across several reports matter
Watch lecture 1.4 on the Fed first to follow the connection between inflation, the expected rate path and stock valuations.
Educational content only. Not investment advice.
Key takeaways
- Inflation reaches a stock two ways: through interest-rate expectations, and through the prices that shape a company's revenue and costs.
- CPI, PPI and PCE measure different things; headline, core and services readings answer different questions; and the base effect can move a year-over-year number without prices changing much this month.
- What matters is the print against the consensus — and the composition of the surprise and the trend across several reports, not one number.
- Watch the 2-year Treasury yield and index futures in the minutes after a release to see how the market read it.