Mon Nov 30 07:00:00 CST 2015

Consensus Actual Previous
Month over Month 0.0% 0.1% 0.0%
Year over Year 0.3% 0.4% 0.3%

Consumer prices proved a little stronger than expected in November. A 0.1 percent monthly increase in the provisional CPI was only enough to lift the annual inflation rate by a tick to 0.4 percent, but this was still its highest mark since May.

The flash HICP also accelerated and a 0.1 percent gain versus October nudged its yearly rate from 0.2 percent to 0.3 percent, also a 6-month high.

However, the minimal increase in the annual headline rate was largely attributable to gains in the CPI basket's more volatile components. Hence, both food (2.3 percent after 1.6 percent) and energy (minus 7.5 percent after minus 8.6 percent) posted sizeable rises while inflation in services (1.2 percent) and in rent, excluding utilities (1.1 percent) was only unchanged. The overall goods rate was two ticks higher but still solidly negative at minus 0.6 percent.

Today's stronger than expected German inflation data contrast with the surprisingly soft Italian figures released earlier today (see calendar entry) so the implications for Wednesday's full Eurozone flash HICP report are unclear. That said, the signs are that underlying developments were little changed from October and certainly soft enough to leave intact expectations for additional monetary accommodation from the ECB on Thursday.

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.