Wed Apr 29 07:00:00 CDT 2015

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

Consumer prices look to have behaved much as expected this month. Although a provisional 0.1 percent monthly dip in the CPI was only enough to lift the annual inflation rate by a tick to just 0.4 percent, this was still its highest level since November 2014.

The HICP essentially followed suit, also posting a 0.1 percent drop versus March for a yearly rate of 0.3 percent, up from 0.1 percent.

In terms of the annual rate, the main upward pressure came from food where prices were 1.1 percent higher on the year after a 0.1 percent decline last time. Goods inflation (minus 0.6 percent after minus 0.8 percent) similarly moved in the right direction but services saw a 0.1 percentage point fall to a 1.1 percent yearly rate. Rent (excluding utilities) was steady at 1.1 percent while energy prices were down 5.9 percent versus April 2014, a couple ticks steeper than their March drop.

The latest increase in German inflation will sit well with the ECB but with underlying developments apparently still very soft, there is little reason for any real cheer. Still, the acceleration here at least increases the likelihood of a pick-up in the flash April Eurozone HICP rate, due for release tomorrow.

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 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.