Tue Jun 16 01:00:00 CDT 2015

Consensus Actual Previous
Month over Month 0.1% 0.1% 0.1%
Year over Year 0.7% 0.7% 0.7%

There were no revisions to consumer prices in the final report for May. A 0.1 percent rise on the month and 0.7 percent increase on the year were both in line with their respective flash estimates and left the annual inflation rate at its highest level since last October.

The HICP was also unrevised and matched the both the monthly and yearly changes posted by their CPI counterpart.

The main upward pressure on consumer prices came from household energy where charges rose 0.3 percent from April and transport (0.7 percent) which was hit by a 2.3 percent jump in the cost of motor fuels. Recreation and culture (0.4 percent) and miscellaneous goods and services (0.3 percent) were also relatively firm. The core CPI (excluding energy) edged 0.1 percent higher from the start of the quarter and, at 1.3 percent, its annual rate was also a tick up on last time.

The final report for May suggests that German inflation is gradually moving back into more familiar territory. According to the latest PMI surveys both manufacturing and service providers are now raising output prices and in the case of the latter, charges in May saw their strongest gain since January 2014. This suggests that deflation risks have all but abated.

Even so, the economy has fallen short of earlier growth expectations so far this year so a sharp take-off in inflation remains very unlikely in the absence of a significant positive shock from the commodity markets.

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.