IT: CPI


Wed Oct 14 03:00:00 CDT 2015

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

Highlights
The provisional CPI was revised slightly weaker in the final report for September and now shows a 0.4 percent monthly decline and a 0.2 percent annual inflation rate, matching its yearly outturn in August.

The flash HICP was unrevised and so still posts a seasonal 1.6 percent increase versus August and a 0.2 percent annual rise, down from 0.4 percent last time.

As indicated previously, within the basket component prices moved in markedly different directions. Hence, while annual inflation rates for unprocessed food (3.3 percent after 1.9 percent) and transport services (0.8 percent after minus 0.1 percent) climbed significantly, the rate for non-regulated energy (minus 12.8 percent after minus 10.4 percent) decreased quite sharply. Core prices actually accelerated as signalled in the preliminary report and stand 0.8 percent higher on the year following a 0.7 percent gain last time.

There is nothing really new here. The headline revision essentially reflects changes to the more volatile CPI components and the gentle rise in underlying inflation is very welcome. That said, in Italy as in much of the Eurozone the overall price picture remains dangerously weak.

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.