Tue May 19 03:30:00 CDT 2015

Consensus Actual Previous
Month over Month 0.4% 0.2% 0.2%
Year over Year 0.0% -0.1% 0.0%

Consumer prices rose 0.4 percent on the month in April, in line with expectations but not enough to prevent the annual inflation rate from dipping a tick to minus 0.1 percent and so sliding into negative territory for the first time on record.

The main downward impact on the yearly rate came from transport where charges rose 2.4 percent on the month compared with a 7.9 percent jump over the same period in 2014. Higher air and sea fares were largely responsible. A number of others sectors, including housing and household services, clothing and footwear, and household equipment and routine maintenance also made small negative contributions.

Meantime, the most prominent positive impact came from motor fuels which saw a 1.6 percent monthly increase compared with a 0.1 percent drop a year ago. Both petrol and diesel provided headline inflation with a modest boost. Recreation and culture alongside miscellaneous goods and services and food and non-alcoholic drinks had minor positive effects.

As a result, the core CPI advanced 0.3 percent versus March which was small enough to shave 0.2 percentage points off the annual underlying rate which now stands at just 0.8 percent.

Today's results will not be a surprise to the BoE which some while ago warned that inflation could go negative as a result of the collapse in oil prices. Nonetheless, the relatively broad-based weakness of last month's data must be something of a concern and April's inflation report must further reduce the likelihood of a hike in Bank Rate in 2015.

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.

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.