Tue Oct 13 01:00:00 CDT 2015

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

The provisional estimate of September consumer prices was unrevised in the final report. Accordingly, a 0.2 percent monthly decline reduced the annual inflation rate by also a couple of ticks to zero percent, its weakest mark since January.

The final HICP was similarly in line with its flash estimate, leaving a 0.3 percent drop versus August and, at minus 0.2 percent, the first negative yearly change since February.

Inevitably, the deceleration in the annual CPI rate was largely attributable to a steeper decline in energy prices, now down some 9.3 percent versus September 2014 and within which mineral oil products were off fully 17.1 percent. Excluding energy (household and motor fuels) prices were flat on the month and up 1.1 percent in the year, in line with the mid-quarter outturn. Elsewhere in the CPI basket there was some upside pressure from food and non-alcoholic drinks, education and communications and media but this was partially offset by reduced annual rates for alcohol and tobacco and education.

Overall the signs are that underlying German inflation is moving sideways. Without a major new fall in energy charges diminishing deflation risks seem unlikely to be realised but at the same time, the domestic economy's recent loss of momentum hardly argues in favour of any significant acceleration in prices.

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.