CPI is a macroeconomic indicator that reflects changes in the price level of consumer goods purchased by households. Generally speaking, the level of CPI directly affects the introduction and intensity of the country's macroeconomic control measures, such as whether the central bank adjusts interest rates and whether to adjust the deposit reserve ratio, etc. At the same time, the level of CPI also indirectly affects changes in capital markets (such as stock markets, futures markets, capital markets, and financial markets).

What is the impact of CPI on the stock market?

Although from a system perspective, CPI and stock prices are two different price systems. But they are very closely linked and influence each other, and changes in CPI will have a significant impact on the stock market.

Theoretically, there is no functional relationship between CPI and the rise and fall of the stock market, but it can indeed affect the stock market through the supply and demand relationship in funds. Under a loose monetary policy, bank deposit and loan interest rates are low, so banks will be less attractive to social liquidity funds, and total bank savings deposits will even experience negative growth. Investment market areas such as the stock market and real estate will attract liquid funds to enter, thereby driving up housing prices and stock indexes.

However, it is impossible for the stock index to maintain a sustained rise. When there is too much liquidity in the market, the CPI will continue to rise. The country will definitely increase the intensity of monetary and fiscal policy adjustments and introduce tightening macroeconomic control policies. If commercial bank deposit reserve ratios and interest rates are continuously raised, the shortage of liquidity will inevitably be transmitted to the stock market, and funds will flow out of the housing market and stock market, leading to changes in stock indexes and housing prices.

The continued rise in CPI will trigger structural adjustments in the stock market. Most of my country's past inflation was mainly caused by excess currency, but the excess currency did not flow to various industries evenly or at the same time, but first flowed into strong sectors or industries.

Therefore, some relatively active sectors will likely remain stable or upwardly strong within a period; industry sectors encouraged or protected by national policies will likely enter a new growth cycle; and for traditional industries restricted by the state, , and the stock prices of industry sectors that may experience a drop in profits due to the continued rise in CPI and regulatory policies will fall.

The continued rise in CPI also reminds stock market investors to be wary of asset price risks. Generally speaking, when CPI continues to rise, investment direction will shift to high-return investment markets such as the stock market. The continued rise in CPI will also lead to an increase in capital costs for listed companies (increased corporate loan costs), which will reduce corporate profits and increase the price-to-earnings ratio of stocks.

At the same time, as the CPI continues to rise, the attractiveness of funds to stock prices will gradually decrease. Investors' desire for stock investment will gradually decrease, and funds circulating in the stock market will withdraw. As a result, it is difficult to keep the stock price stable at a high level, causing the stock index to fall.

Historical data research shows that when inflation is moderate (CPI: 2%-5%), the Shanghai Stock Exchange Index will be minimally affected, and may even accelerate upward (such as the Shanghai Stock Exchange Index in 2007). In a period of mild inflation, a slight increase in commodity prices will stimulate a certain increase in corporate profits and achieve a reasonable small premium, which will in turn have a positive impact on the stock market.