Thu Mar 12 02:45:00 CDT 2015

Consensus Actual Previous
Month over Month 0.5% 0.7% -1.0%
Year over Year -0.2% -0.3% -0.4%

Following their January slump, consumer prices rebounded in February. However, even a larger than expected 0.7 percent monthly rise only reversed part of the previous period's drop and, at minus 0.3 percent, the annual inflation rate was just a tick above its level at the start of the year.

The HICP followed suit with a 0.7 percent increase on the month that also nudged its yearly rate up from minus 0.4 percent to minus 0.3 percent.

Within the CPI basket a number of categories posted seasonal spikes but for most tight market conditions ensured gains in February this year were smaller than in the same month in 2014. For example, a 4.5 percent monthly jump in the cost of clothing and shoes was well short of the 6.2 percent bounce a year ago and the same was true of furniture and furnishings (0.9 percent after 1.9 percent) and textiles (1.5 percent after 2.6 percent).

Indeed, the overall picture would have been a good deal softer but for a 2.1 percent monthly rise in energy charges (petroleum products 4.7 percent) and the annual increase in the core CPI actually dipped from 0.2 percent to 0.1 percent.

The relative weakness of the recovery in French prices versus their German counterparts last month reflects the dislocation in their respective economic cycles. Recent French economic news has certainly been more optimistic but without a significant, and sustained, pick-up in domestic demand national inflation is likely to remain worryingly close to, or even below, zero throughout 2015.

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.