GB: CPI


Tue Apr 14 03:30:00 CDT 2015

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

Highlights
Inflation just about managed to keep its head above water in March. A 0.2 percent monthly rise in the CPI was marginally softer than expected but enough to hold the annual inflation rate steady at February's 0.0 percent.

The main downward pressure on the yearly rate came from clothing and footwear where prices fell 0.1 percent on the month this March versus a 1.8 percent increase in the same month in 2014. Significantly, this was their first ever March decline and suggests that, notwithstanding the introduction of new fashion lines, clothing retailers are having to work hard to maintain volumes and market share. The other principal negative effects were attributable to housing and households services (prices down 0.4 compared with a 0.1 percent drop last year) as gas charges fell more rapidly this time round. Restaurants and hotels (up 0.2 percent versus a 0.5 percent increase) also helped to check the overall CPI.

Offsetting positive effects came from higher petrol costs (up a monthly 3.8 percent per litre versus no change in March 2014) and a smaller fall in food and non-alcoholic drinks charges.

The core CPI matched the 0.2 percent headline monthly advance but this still saw the annual underlying inflation rate slip from 1.2 percent to only 1.0 percent.

Today's report strengthens the case of the BoE MPC doves and makes a hike in Bank Rate in 2015 slightly less likely.

Definition
The consumer price index (CPI) is defined as an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using HICP methodology developed by Eurostat, the European Union's statistical agency. The CPI is the Bank of England's inflation measure.

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 the UK, 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.

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.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. 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.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.