The Consumer Price Index (CPI) measures the change of prices of goods and services bought by households. It is used to track the cost of living in Singapore, compare how it changes over time, and monitor inflation.
First off, there is no such thing as a holy grail for your trading strategy. There isn’t anything that will work in every situation, but one must remember there is always something that can be changed or tweaked to maximize results and minimize losses. This article discusses how CPI (consumer price index) affects the Singaporean market and how this may influence your current trading approach.
Although we all know that an increase in CPI generally means inflation is rising by the country’s standards, other factors might affect this environment, such as demand for certain services (i.e. education), tourism rates/exchange rate relative to other countries, etc.… Also, keep in mind the different types of CPI; Core CPI excludes food and energy prices, which are more volatile.
Examples of how CPI can affect your trading strategy
- If you’re in the learning phase with forex trading (i.e. still improving on your strengths and working to overcome weaknesses), then it would be best to stick to short term trades that do not require a lot of time for analysis; that way, there is time left for other areas you might need improvement on. On the flip side, if you have been trading for some years now, this might be a chance to analyze specific factors rather than just focusing on other parts of your life such as family/work etc. In order words, use this increased CPI as an opportunity for self-improvement.
- Perhaps you are considering opening up a long position, but wait! As inflation rises, so does the cost of items/services etc. It means that the price of your products will also rise, and if an increase does not follow this in sales, there might be some issues. If you decide to go forward with your planned trading strategy, make sure you have enough funds set aside for it, as any losses due to CPI may force you to liquidate assets essential for other areas of your life.
Two common ways traders use the CPI
If you know what direction CPI is trending, you can make more informed trading decisions. For example, if an increasing CPI indicates econ growth, risky assets like currencies would be more attractive than less risky ones like US treasury bills (gov bonds). However, if an increasing CPI indicates an overheated economy, then traders may want to take more risks off the table. Unfortunately, it is not easy to implement into a trading strategy because CPI is just one variable in the whole equation.
When you look at inflation forecasts, you can see how much prices are likely to increase in the future. If you believe that high inflation will drive higher interest rates, this could be an attractive component of your portfolio. This variable cannot stand alone when making trading decisions because other factors like interest rate levels and economic growth are critical for determining asset price movements.
There are many other ways that CPI can affect your trading decisions in Singapore. As always, it is essential to keep an open mind and think critically about how you can use the available information to make informed trading decisions.
Although CPI has gone up, it remains roughly 2% per annum. With this information in mind, one can only ensure their trading strategies are well-suited for the market; Saxo Bank Group can help.