Measuring inflation can be challenging because the Consumer Price Index, or CPI, is based on fixed goods and services and readings don’t always reflect the actual prices people are paying. Using health insurance as an example, the CPI measures price changes but not a consumer’s direct costs. At a time when paychecks are decreasing and the cost of healthcare is at a 4-decade high , the CPI isn’t measuring the value consumers receive from their health insurance yet takes profits into consideration. Looking back to the pandemic, consumers were paying health insurance premiums yet had limited access to medical care. Today, the opposite is true.
The CPI directly affects the stock market because when prices go up consumer spending goes down, and vice versa. Investors consider the price changes relative to their investments when making changes in their portfolio. Businesses will use the Consumer Price Index to adjust cost of living wages and set prices for goods and services. The government uses the CPI to income eligibility requirements for government assistance, tax brackets, and more.
Contact Alloy Investment Management for more information on investment management principles and strategies. One of our financial experts will explain why market downturns are inevitable and offer strategies you can use to protect against those downturns. 800-689-3935