Tue Jul 14 01:00:00 CDT 2015

Consensus Actual Previous
Month over Month -0.1% -0.1% -0.1%
Year over Year 0.3% 0.3% 0.3%

The flash June CPI was unrevised in the final data and so still shows a 0.1 percent monthly dip and a 0.3 percent yearly increase, down from 0.7 percent in the final May report.

The HICP similarly matched its flash estimate of a 0.2 percent drop versus mid-quarter for a 0.1 percent rise versus a year ago also after a 0.7 percent annual rate last time.

The first deceleration in annual CPI inflation after four successive monthly gains was largely attributable to further weakness in energy costs which fell 0.5 percent from May on the back of a 2.6 percent slump in heating oil charges. Excluding household energy, prices were flat on the month and 1.1 percent higher on the year following a 1.3 percent annual increase previously. Elsewhere, food and non-alcoholic drinks decreased a monthly 0.4 percent and clothing and footwear was off 1.8 percent but alcohol and tobacco increased 0.7 percent and package holidays were up 1.9 percent.

June's relatively hefty decline in headline inflation was biased down by an unusually large monthly rise in prices a year ago. That said, the fall underlines what is still a soft profile to consumer prices and, especially in the wake of some recent disappointing German economic news, offers a timely reminder that a return to near a 2 percent level 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 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.