Wed May 13 01:00:00 CDT 2015

Consensus Actual Previous
Month over Month -0.1% 0.0% -0.1%
Year over Year 0.4% 0.5% 0.4%

The flash April CPI was revised a tick stronger in the final data. Prices now show no change from March, enough to lift the annual inflation rate by a couple of notches to 0.5 percent, its highest mark since last November and its third consecutive reading above zero.

By contrast the HICP was unrevised and so still shows a 0.1 percent rise versus March and 0.3 percent yearly rate, up from 0.1 percent at the end of the first quarter.

The main upward pressure on prices came from food which increased 0.9 percent on the month, motor fuels (2.3 percent) and clothing and footwear (0.5 percent). However, household energy fell 0.2 percent and package holidays were down a seasonal 10.2 percent. Excluding energy the CPI actually fell 0.1 percent although this was still firm enough to lift the annual core rate from 1.0 percent to 1.2 percent.

Abstracting from the monthly swings prompted by volatility in the oil market there are signs that German inflation is gradually creeping higher. A pick-up in wage settlements is compounding the effects of the introduction of the national minimum wage and more of the same would certainly not upset the ECB.

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.