FR: CPI


Wed May 13 01:45:00 CDT 2015

Consensus Actual Previous
Month over Month 0.2% 0.1% 0.7%
Year over Year 0.0% 0.1% -0.1%

Highlights
After a hefty, but in large part seasonal, 0.7 percent monthly rise in both February and March, consumer prices were much less volatile in April. A 0.1 percent monthly increase was slightly less than expected but still firm enough to see annual inflation climb from minus 0.1 percent to 0.1 percent, its first positive post in 2015.

The HICP matched the CPI with a 0.1 percent increase versus both March and April 2014, the latter following a zero annual rate last time.

The monthly uptick in consumer prices was led by a seasonal bounce in clothing and footwear (0.6 percent) and higher petrol costs which ensured a sizeable increase in overall transportation charges (1.5 percent). Most other categories were relatively stable. The core index also increased 0.1 percent on the month and, at 0.4 percent, its yearly rate was up 0.2 percentage points from March.

Today's report suggests that the worst of recent deflation pressures may be over. That said, factory gate charges are still falling and in general domestic markets remain far too competitive to accommodate any strong increase in prices. Today's first quarter national accounts report showed a solid rise in household spending but this was likely supported in no small way by heavy discounting. Even if a prolonged period of deflation has been avoided, a return to more normal inflation rates is probably a long while off yet.

Definition
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 represent the main rates of inflation. The national CPI is released alongside the HICP, Eurostat's harmonized measure of consumer prices.

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

France 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.

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.