Release Explanation: The CPI measures the average price of a fixed market basket of goods and services purchased by consumers, and therefore gives an overall read of inflationary pressures. It is the most widely used Inflation indicator of central banks, institutions, and governments. It is used to calculate cost of living numbers for government programs. Each regional central bank will have their own CPI target rate, and each will differ in line with the way they individually want to control the aspects of their own economies.

It can sometimes overstate inflation because it does not reflect price changes in new technology goods which are often declining in price as new innovations come into the market. Despite these criticisms, it remains the benchmark inflation index worldwide. CPI can be greatly influenced in any given month by movement in volatile food and energy prices, and therefore it is important to look at CPI excluding food and energy, commonly called the “core rate of inflation.

Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new car sales. In addition to tracking the month over month (m/m), the year over year (y/y) change in core CPI is seen by economists as the most reliable read of the underlying inflation rate.

This is the be all and end all of economic releases. This report sets the tone for economic growth or contraction, and therefore eventually affects most other releases. The gauge of inflation is a report that moves markets because it gives a central bank the information they need to make rate decisions. This therefore is a big market mover as institutions adjust existing or planned positions in response to the rate of inflation and its impact on a currency, i.e. CPI higher, currency appreciation, CPI lower, currency depreciation.

Trade Desk Thoughts: The Consumer Price Index (CPI) rose by 0.4% (seasonally adjusted) in February, the Labor Department said today. That was higher than the 0.3% that economists had estimated and the 0.3% CPI in January. Core CPI, ex-food and energy, rose by 0.2% last month.

For the year to February, the CPI was just 0.2%, after rising by as much as 5.0% last July. However, the less-volatile core CPI index was up 1.8% from one year ago, well within the range that Federal Reserve officials prefer.

About two-thirds of the increase in headline CPI for February was due to the 8.3% rise in the gasoline index. Still, compared to the July 2008 peak, the overall energy index was lower by 29.2% and the gasoline index by 44.0% last month.

The yearly core rate is well within the range that Federal Reserve officials prefer to see, said Matthew Carniol, chief currency strategist at The number implies that the Fed will be less concerned about deflation occurring.

As long as price declines stay centered in things like energy, commodities and food, that's generally a plus for the economy because it frees up more disposable income for households to spend. Retail spending has improved over the first two month of this year.

The compound annual rate of inflation for the three months to February was -0.5%, lower than the -8.4% seen in January. Core CPI increased at a 1.5% compound annual rate over the same period after increasing by 0.9% the prior month.

Transportation prices increased for a second-straight month, by 1.9%. Airline fares fell, but new vehicle prices increased 0.8%, the biggest increase since November 2004. Housing, which accounts for 40% of the CPI index, was unchanged. That index hasn't risen since July 2008. Rent increased 0.1%, as did owners' equivalent rent. However, household fuels and utilities prices slid 0.1% while lodging away from home plunged 1.8% as households cut back on non-essential spending. Medical care prices increased 0.3%, while clothing prices rose 1.3%.

Forex Technical Reaction: S&P futures were trading 0.6% lower on the day prior to the report, but the dollar was recently declining against the euro, pound and aussie. Futures were basically unchanged afterwards, and the dollar was coming off its weakest levels of the session.