Wed Sep 30 04:00:00 CDT 2015

Consensus Actual Previous
Month over Month -0.4% -0.3% 0.2%
Year over Year 0.2% 0.3% 0.2%

Consumer prices provisionally fell 0.3 percent on the month in September. This was a small enough decline to allow the annual inflation rate to move a tick higher to 0.3 percent, equalling its strongest reading since May 2014. September was the fifth consecutive month in which the yearly inflation rate has been above zero.

The HICP jumped a largely seasonal 1.6 percent versus August which shaved 0.2 percentage points off its annual rate to 0.2 percent.

The minor acceleration in CPI inflation was attributable to the strength of the unprocessed food subsector where prices rose 3.4 percent on the year after a 1.9 percent increase in August. There was an additional boost from transportation charges but gains in both categories were almost offset by another hefty decline in energy inflation from minus 10.4 percent to minus 12.8 percent. Core inflation, which excludes unprocessed food and energy, weighed in at 0.8 percent, marginally higher than its 0.7 percent outturn in mid-quarter.

In line with most Eurozone countries, Italian inflation continues to hover worryingly close to zero. September's provisional uptick in the core rate should be welcomed but the longer the headline rate remains so weak the harder will it be for businesses to raise prices again.

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.

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.