Fri Oct 30 05:00:00 CDT 2015

Consensus Actual Previous
Month over Month 0.1% 0.2% -0.4%
Year over Year 0.2% 0.3% 0.2%

Consumer prices rose a monthly 0.2 percent in the provisional data for October. The increase was slightly more than expected and firm enough to see the annual inflation rate edge a tick higher to 0.3 percent, equalling its strongest reading since May 2014.

The HICP was up 0.5 percent versus September which also saw its yearly rate climb 0.1 percentage points to 0.3 percent.

The headline acceleration was mainly due to stronger annual rates in unprocessed food (4.2 percent from 3.3 percent) and recreation (1.5 percent from 1.1 percent). A partial offset was provided by renewed weakness in regulated energy (minus 2.0 percent from minus 1.1 percent). As a result, the core inflation rate, which excludes energy and unprocessed food, held steady at September's 0.8 percent yearly rate.

Recent data have been rather more upbeat on the Italian real economy and at long last retail sales seem to be on a sustainable uptrend. However, growth is still too sluggish to accommodate any meaningful price rises at the consumer level and the output gap far too wide to induce any supply-side pressures. Indeed household inflation expectations recently started to fall again. Against this backdrop the outlook for Italian inflation remains very weak at best.

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.