WASHINGTON (TNND) — The latest inflation report is out — and while the numbers may seem like just another set of economic statistics, they can have an immediate impact on Wall Street, interest-rate expectations and, eventually, borrowing costs for Americans.

The report in question is the Consumer Price Index, or CPI. Put simply, CPI is the government’s monthly inflation report. It tracks changes in the prices consumers pay for goods and services, including housing, food, energy, transportation and medical care.

What did the latest report show?

The Bureau of Labor Statistics reported Wednesday that consumer prices increased 0.1% in July from the previous month. Prices were up 3.4% from a year earlier, down from a 3.5% annual increase in June.

Core CPI, which excludes food and energy prices that can fluctuate more sharply, increased 0.2% in July.

The numbers largely matched what economists had expected, helping ease some concerns about another interest-rate increase from the Federal Reserve. Reuters reported that markets subsequently reduced expectations for a September rate hike.

So why does Wall Street care so much?

The CPI report matters because investors are watching for clues about what the Federal Reserve could do with interest rates.

If inflation comes in hotter than expected, investors may worry the Fed will need to keep rates higher for longer — or potentially raise them. That can put pressure on stocks and push bond yields higher.

A cooler-than-expected report can have the opposite effect, increasing expectations for rate cuts.

And the key word is “expected.”

Markets don’t just react to whether inflation is high or low. They react to whether the number is higher or lower than investors anticipated.

Federal Reserve research has found that financial markets can react particularly strongly to surprises in CPI data, with bond yields and other asset prices responding rapidly to unexpected inflation numbers.

That’s why a report that changes by just a few tenths of a percentage point can trigger significant market moves.

Does CPI reflect what Americans actually pay?

It can — but it doesn’t necessarily reflect your personal cost of living.

CPI is a national measure based on broad consumer spending patterns. Someone who spends most of their income on rent, for example, may experience inflation very differently from someone who owns their home.

There’s also an important distinction between inflation falling and prices falling.

When the inflation rate decreases, it generally means prices are rising more slowly. It does not mean prices have returned to where they were several years ago.

So Americans can still feel squeezed by higher prices even when inflation is cooling.

What does this mean for mortgages and credit cards?

CPI doesn’t directly set mortgage or credit-card rates.

But inflation can influence expectations for Federal Reserve policy, and Fed policy affects the broader cost of borrowing.

That means a surprisingly hot inflation report can push investors to expect higher interest rates, potentially keeping borrowing costs elevated.

Mortgage rates also depend heavily on bond-market conditions and other factors, so they don’t simply move in lockstep with the Fed or CPI.

Can stocks hit record highs while Americans are struggling?

Yes. That’s because the stock market and household finances measure different things.

Stock prices reflect investor expectations about corporate profits, interest rates and future economic conditions. They don’t measure whether every household can comfortably afford housing, groceries or credit-card payments.

In fact, that’s part of what made the latest CPI report so closely watched: U.S. stocks had recently been hitting records, while investors were trying to determine whether inflation would derail expectations about interest rates.

The latest report offered some relief to markets. But it doesn’t mean inflation is gone — or that every American is feeling financially comfortable.

The fact check: CPI is an important snapshot of inflation, but it isn’t a personal cost-of-living report. And while one monthly number doesn’t tell us everything about the economy, it can dramatically change what investors expect the Federal Reserve to do next.