Thu Apr 30 04:00:00 CDT 2015

Consensus Actual Previous
Month over Month 0.2% 0.3% 0.1%
Year over Year -0.1% 0.0% -0.1%

Consumer prices provisionally rose a slightly larger than expected 0.3 percent on the month in April. The increase nudged the annual inflation rate a tick firmer to 0.0 percent, its first non-negative reading this year.

The flash HICP was up a sharper 0.5 percent versus March but this only left its annual rate steady at 0.0 percent.

The headline gain was led by a 1.7 percent jump in hotels, cafes and restaurant charges and a 0.6 percent rise in leisure, culture and education costs. However, housing, water and energy fell 0.5 percent and communication was down 0.6 percent. Underlying inflation as measured by the CPI excluding energy and unprocessed food was unchanged at a 0.4 percent annual rate.

April's preliminary figures are a little stronger than anticipated but not to the extent that would change a very weak picture of Italian consumer prices. Indeed, if the jump in the unemployment rate to 13.0 percent last month is anything to go by, sustaining any upward trend in inflation over coming months will prove particularly difficult without the help of a boost from the oil market.

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 the most closely watched measures of the inflation rate. A flash estimate is available normally in the last week of the reference month or the first week of the following month.

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 Italy 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, Italy's interest rates are set by the European Central Bank.

Italy like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

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.