Wed Jan 14 01:45:00 CST 2015

Consensus Actual Previous
Month over Month 0.0% 0.1% -0.2%
Year over Year 0.2% 0.1% 0.3%

French inflation crept closer to zero in December as a 0.1 percent monthly increase in consumer prices shaved a further 0.2 percentage points off the annual CPI rate which now also stands at just 0.1 percent. Seasonally adjusted the headline index dipped 0.1 percent on the month

The HICP similarly edged 0.1 percent higher versus November and its 0.1 percent yearly rate was fully 0.3 percentage points below its mid-quarter pace.

Energy prices were down 2.6 percent on the month (and 4.4 percent on the year) with oil off some 4.6 percent. Food (minus 0.1 percent) and health products (minus 0.2 percent) were the other main areas of weakness. Elsewhere, seasonal monthly price hikes (transport and communication spiked 2.2 percent) saw overall private sector service charges increase 0.6 percent but the core CPI was still only 0.1 percent firmer versus November and 0.1 percent below its December 2013 level.

Today's update on French prices simply reinforces the impression of building deflation pressures in the Eurozone.

The consumer price index (CPI) 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 represent the main rates of inflation. The national CPI is released alongside the HICP, Eurostat's harmonized measure of consumer prices.

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 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, France's interest rates are set by the European Central Bank.

France 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.

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.