EMU: HICP


Fri Aug 14 04:00:00 CDT 2015

Consensus Actual Previous
Month over Month -0.6% -0.6% 0.0%
Year over Year 0.2% 0.2% 0.2%

Highlights
The Eurozone's harmonized index of consumer prices was up with its third month of positive inflation, although it remains well below the European Central Bank's target of just under 2 percent. On the year, the July HICP was up 0.2 percent, in line with the previous month and the initial estimate. Core HICP (excluding energy) was up 0.9 percent on the year and was the core that excludes energy and unprocessed food.

The Eurozone left deflation in April, a month after the European Central Bank launched its keenly anticipated E60 billion a month quantitative easing program which was designed to avoid a long period of deflation and reboot growth in the common currency bloc.

Minutes of the ECB's most recent meeting, published yesterday, showed the central bank is becoming increasingly confident that its aggressive monetary easing has warded off the threat of falling prices.

Definition
The harmonized index of consumer prices (HICP) is an internationally comparable measure of inflation calculated by each member of the European Union using a specific formula. Since January 1999, the European Central Bank has used the HICP as its target measure of inflation.

Description
The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB'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 HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.