DE: CPI


Thu Mar 12 02:00:00 CDT 2015

Consensus Actual Previous
Month over Month 0.9% 0.9% 0.9%
Year over Year 0.1% 0.1% 0.1%

Highlights
The acceleration in inflation provisionally posted in February was confirmed in the final data. A 0.9 percent monthly rise in consumer prices lifted their annual rate by fully 0.5 percentage points to 0.1 percent. The HICP was similarly unrevised and so still shows a 1.0 percent increase versus January and a yearly drop of just 0.1 percent after a 0.5 percent decline last time.

The monthly jump in prices was driven by the energy sector which recorded a 2.1 percent gain on the back of hefty rises in heating oil (13.6 percent) and motor fuels (3.7 percent). A number of other categories registered seasonal spikes; notably package holidays (16.3 percent), clothing (2.0 percent) and vegetables (4.6 percent).

Underlying prices were also relatively firm and the annual increase in the core CPI which excludes household energy and motor fuels index edged up from 0.8 percent at the start of the year to 1.0 percent, matching its December mark.

Despite its mid-quarter acceleration, annual CPI inflation remains within touching distance of zero and the comparable HICP rate is still in negative territory. Moreover, oil prices have softened so far this month. The economy is showing some early signs of picking up momentum but a return to more normal levels of inflation in Germany still looks unlikely anytime soon.

Definition
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.

Description
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.