Mon Mar 30 07:00:00 CDT 2015

Consensus Actual Previous
Month over Month 0.4% 0.5% 0.9%
Year over Year 0.3% 0.3% 0.1%

For the second month in a row, consumer prices exceeded expectations in March. A provisional 0.5 percent increase in the CPI versus its mid-quarter level was enough to add 0.2 percentage points to the annual inflation rate which now stands at 0.3 percent, its highest mark since last November.

The HICP similarly accelerated with a 0.5 percent monthly increase that lifted its yearly rate from minus 0.1 percent to 0.1 percent, its first reading above zero since December.

Upside pressure on the monthly change in prices came mainly from a seasonal spike in clothing and shoes and a jump in transportation where charges were boosted by another sizeable increase in the cost of motor fuel. Annual energy inflation rose from minus 7.3 percent in February to minus 5.7 percent. Food inflation also gained ground (0.1 percent after minus 0.4 percent) and total goods posted a minus 0.8 percent rate, up from minus 1.4 percent last time. Even so, rent (excluding utilities) was only flat at 1.3 percent while services actually dipped a couple of ticks to 1.2 percent.

Still, the pick-up in German prices increases the likelihood that tomorrow's March flash HICP report for the Eurozone as a whole will show annual inflation taking another step closer to positive territory. It is very early days yet but the ECB must be feeling a good deal happier than it was just a couple of months ago.

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.