IT: CPI


Mon Sep 14 03:00:00 CDT 2015

Consensus Actual Previous
Month over Month 0.2% 0.2% 0.2%
Year over Year 0.2% 0.2% 0.2%

Highlights
Consumer prices were unrevised in the final report for August. A 0.2 percent increase, both on the month and on the year, matched the flash data and confirmed a fourth consecutive month of positive annual inflation.

However, the HICP was revised a tick softer. This now shows a 0.1 percent dip versus its final July level and a 0.4 percent rise from August 2014, also 0.1 percentage points less than previously reported but still up from July's 0.3 percent print.

Annual core CPI inflation (ex-unprocessed food and energy) matched its 0.7 percent flash rate, down from 0.8 percent at the start of the quarter.

There is little news of any market importance here. Deflation risks have receded somewhat in recent months but prices remain very soft and with retail sales still falling, there continues to be significant downside risk.

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 provide the most closely watched measures of the inflation rate. A flash estimate is available normally in the last week of the reference month or the first week of the following month.

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 such as the Italy 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, Italy's interest rates are set by the European Central Bank.

Italy like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

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.