FR: CPI


Tue Sep 15 01:45:00 CDT 2015

Consensus Actual Previous
Month over Month 0.3% 0.3% -0.4%
Year over Year 0.0% 0.0% 0.2%

Highlights
Consumer prices matched expectations in August. A 0.3 percent monthly rise reversed most of July's 0.4 percent drop but still saw annual inflation slide from 0.2 percent to 0.0 percent, its lowest rate since March.

The HICP was up a slightly larger 0.4 percent on the month but this too was not enough to prevent its yearly rate declining, this time by just a tick to 0.1 percent to equal its softest reading in five months.

The monthly increase in prices was mainly attributable to seasonal gains in manufactured product charges and adjusted for these and similar effects, the CPI fell 0.1 percent. This means that the adjusted index has now declined for three consecutive months. Weakness here was largely a function of a sharp drop in the cost of fresh produce and energy and the adjusted core index posted a 0.1 percent monthly increase. Even so, this was still small enough to shave a tick off the annual underlying inflation rate which now stands at a minimal 0.1 percent.

The August CPI data reinforce a particularly soft picture of French inflation. Falling commodity prices are clearly a factor but a near-zero underlying rate is consistent with persistently sluggish domestic demand - indeed, final domestic demand added just 0.1 percentage points to real GDP growth last quarter. Deflation risks remain a genuine threat to the French economic recovery and so increase the likelihood of additional QE from the ECB at some point.

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 represent the main rates of inflation. The national CPI is released alongside the HICP, Eurostat's harmonized measure of consumer prices.

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 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.