EMU: HICP


Fri Apr 17 04:00:00 CDT 2015

Consensus Actual Previous
Month over Month 1.1% 1.1% 0.6%
Year over Year -0.1% -0.1% -0.3%

Highlights
The uptick in Eurozone inflation shown in the flash data was confirmed in the final report for March. Thus, an as expected 1.1 percent monthly rise in the headline HICP lifted its yearly increase to minus 0.1 percent from minus 0.3 percent in mid-quarter.

The final figures for the underlying rate were similarly unrevised. Hence, excluding food, alcohol, tobacco and energy as well as omitting just unprocessed food and energy the annual inflation rate was 0.6 percent, actually down a tick from last time. Without just seasonal food and energy the yearly rate was also 0.6 percent, unchanged from its February print.

Amongst the major sectors, annual energy inflation (-6.0 percent after minus 7.9 percent) showed the only monthly increase of note as non-energy goods (0.0 percent) and food, alcohol and tobacco (0.6 percent) edged just 0.1 percentage points firmer. Indeed, services saw an ominous 0.2 percentage point fall to 1.0 percent.

Regionally national headline inflation rates were slightly firmer in most member states but still sub-zero in nine. Greece (minus 1.9 percent) was at the bottom of the ladder ahead of recession-hit Cyprus (minus 1.4 percent) and Lithuania (minus 1.1 percent). In fact, even top of the pile Austria (0.9 percent) posted a rate below 1 percent. Amongst the big four countries, Spain (minus 0.8 percent) was the only member in negative territory but both France and Italy were only at zero and Germany 0.1 percent.

In Wednesday's post meeting press conference ECB Chief Draghi was inevitably keen to highlight a second consecutive rise in inflation last month. However, even the headline rate is still the wrong side of zero and with underlying rates showing no pick-up and, despite some recent recovery, inflation expectations weak, there is no room for complacency. Any talk of tapering QE at this time is premature in the extreme.

Definition
The harmonized index of consumer prices (HICP) is an internationally comparable measure of inflation calculated by each member of the European Union using a specific formula. Since January 1999, the European Central Bank has used the HICP as its target measure of inflation.

Description
The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB'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 HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.