Thu Oct 29 08:00:00 CDT 2015

Consensus Actual Previous
Month over Month -0.1% 0.0% -0.2%
Year over Year 0.2% 0.3% 0.0%

Consumer prices were provisionally unchanged in October. The outturn, which was slightly stronger than market expectations, saw annual inflation move up from 0.0 percent in September's final report to 0.3 percent, its first increase since May and more than reversing last month's decline.

The HICP was also flat at September's level and, at 0.2 percent, its 12-month change was up 0.4 percentage points from last time.

The acceleration in the yearly CPI rate benefited from the weakness of the October 2014 data when prices fell a monthly 0.3 percent on the back of tumbling oil charges. This was particularly apparent in the energy sector where annual inflation gained 0.7 percentage points to minus 8.6 percent. Food (1.6 percent after 1.1 percent) also posted a sizeable advance and deflation in overall goods was reduced from 1.3 percent to 0.8 percent.

Nonetheless, inflation in the key services sector edged just a tick firmer to 1.2 percent and so simply recovered its August rate. Moreover, rent, excluding utilities, dipped from 1.2 percent to 1.1 percent. Accordingly, the signs are that outside of the more volatile areas, German inflation was essentially flat this month.

Base effects should continue to provide some support to annual inflation through year-end but the ECB should stress the importance of looking at the core rates for short-term developments. If so, a new monetary ease in December will probably hard to avoid.

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.