|Month over Month||0.2%||0.2%||0.1%|
|Year over Year||0.3%||0.3%||0.1%|
Consumer prices moved in line with expectations in May. A 0.2 percent monthly increase in the headline index was enough to lift the annual inflation rate by a couple of ticks to 0.3 percent, only its second reading above zero since last December and equalling its strongest mark since November.
The HICP followed suit, also recording a 0.2 percent rise versus April and a 0.3 percent yearly increase, up from 0.1 percent last time.
The main upward pressure on the monthly change in prices stemmed from a 0.5 percent advance in food (fresh produce 3.2 percent) and a 1.0 percent rise in energy (oil 2.1 percent). However, clothing was up 0.6 percent, package holidays 16.9 percent the other services category 0.4 percent. The core CPI was 0.2 percent above its April level and 0.6 percent higher than a year ago after a 0.4 percent annual increase at the start of the quarter.
Annual inflation has now accelerated every month since its trough of minus 0.4 percent in January while the underlying rate has picked up steadily, if less quickly, since February. The upturn in the former has been mainly a function of the recovery in oil prices but, more significantly, the latter is consistent with a stronger domestic economy. Nonetheless, consumption looks to have slowed of late and real GDP growth this quarter looks likely to be quite sluggish. Accordingly, further gains in consumer prices cannot be taken for granted.
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.
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.
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