Global indices are soaring, helped by a decline in this index! Here's why!

It tracks periodical changes in prices and is thus monitored closely by policy decision-makers, analysts, businesses and consumers.

Indian domestic indices ended the week considerably higher, with significant gains across the majority of sectors. Following the overnight surge in US technology stocks, BSE IT and BSE Teck were the top performing sectors of the session, both gaining more than 3 per cent.  

The S&P 500 and the Nasdaq Composite Index both enjoyed overnight gains of 5.54 and 7.35 per cent, respectively, marking it the strongest day for Wall Street benchmarks in almost two and a half years. All the major global indices were rising following a significant drop in the US consumer price index.  

Let's understand this consumer price index in more detail, which affected market momentum globally.  

A consumer price index (CPI) is a price index that measures the cost of a weighted average market basket of consumer goods and services bought by households.  

As one of the most widely used measures of inflation and deflation, the consumer price index tracks periodical changes in prices and is thus monitored closely by policy decision-makers, analysts, businesses and consumers. Major sectors taken into account while determining the consumer price index include apparel, housing, food and beverages, healthcare, transportation and education.  

It can be calculated using the formula below:  

Consumer Price Index= (Value of market basket in current period/ value of market basket in base period)*100.  

Consumer prices increase and decrease when the CPI is rising or falling, respectively. A higher CPI basically means that inflation is higher. Consumer Price Index (CPI) data showed that headline retail inflation in India surged to 7.41 per cent in September from 7 per cent in August.  

The central bank modifies the target interest rate and formulates various economic policies using data from the consumer price index. As the US consumer price index significantly declined in October compared to September and the inflation rate for the month was the lowest since January, global investors anticipated that the Federal Reserve would now slow down its aggressive interest rate hikes. And for that reason, the environment for the global indices was optimistic!