How to Use Inflation Parameter in Trading Forex
Parameter of inflation should be mandatory taken into account during trader’s analytical work performed on fundamental level. It is used as a calculation base for predictions related to fluctuation of prices of certain products/services for particular country. Respectively value of currencies are affected by this variable as well. Realizing full meaning of terms and processes it causes is necessary for those, who are planning to use it properly in calculations for forecasts about expected changes on currency rates for different pairs. As a separate tool it is represented in a service called IQ Option.
General concept and respective indicators
Simplified approach that describes inflation phenomenon comes down to standard set of distinguished products, or basket that is full of the most consumed products, in order to monitor changing of costs (total and for each component) for time periods. Taking into account fact that prices are used to growth, standard set of “usable” things reflects main directions for such changes and respective trends. Such method of observation is applicable for any set: food, production costs, raw materials and minerals, etc. Anyway, many other things should be also considered. Such approach is defined as The Consumer Price Index. It can be also called shortly CPI and is calculated by responsible government representatives on monthly basis. Such information allows to collect wide range of information, compose it to reports for internal usage and make proper conclusions for existing trends.
Influence on global market
Ministries of national economies are constantly trying to overcome consequences of inflation or at least freeze it for a certain period of time. Laws, regulations with permanent/temporary limitations are used as certain leverage for manipulating it. The benchmark was set at approximately 2-2.5% for countries with strong economics. Central Banks on a permanent basis releases respective reports sent to media for notifying citizens about current, expected and planned indicators to be achieved. In fact, when CPI is higher than the Central Bank forecasted, cash in native currency is amortized, that causes respective growth in cost of baskets described above.