Fri Jan 16 01:00:00 CST 2015

Consensus Actual Previous
Month over Month 0.0% 0.0% 0.0%
Year over Year 0.2% 0.2% 0.2%

The provisional CPI was unrevised in the final December report and so still shows no change from November and a 0.2 percent yearly increase, down from a 0.6 percent annual rate in mid-quarter. Calendar year 2014 inflation was just 0.9 percent, some 0.6 percentage points below its 2013 outturn.

The HICP also matched its flash estimate with a 0.1 percent increase versus November as well as December 2013, the latter down 0.4 percentage points from last time.

The largest monthly changes in prices occurred in the more volatile sectors. Hence, a 14.2 percent slump in heating oil was primarily responsible for a 2.4 percent slide in overall energy costs while a 7.0 percent drop in motor fuels helped to ensure a 1.6 percent decline in total transport charges. Elsewhere seasonal factors saw package holiday prices jump 12.2 percent and clothing and shoes slide 0.9 percent. Excluding energy the CPI was up 0.1 percent from its November level but at 0.5 percent, its yearly change was down sharply from the 1.0 percent print last time.

Today's CPI update simply confirms a weak overall and soft underlying picture of German inflation at year-end. There is no fresh news for financial markets here.

The consumer price index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Germany where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. As a member of the European Monetary Union, Germany's interest rates are set by the European Central Bank.

Germany like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). The HICP is calculated to give a comparable inflation measure for the EMU. Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Württemberg, Saxony, Hesse, Bavaria and Brandenburg. The release date is not announced in advance but the preliminary estimate of the CPI follows in the same day after the last of state releases. The data are revised about two weeks after preliminary release.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.