Tue Nov 17 03:30:00 CST 2015

Consensus Actual Previous
Month over Month 0.1% 0.1% -0.1%
Year over Year -0.1% -0.1% -0.1%

Consumer prices moved in line with expectations in October. A 0.1 percent monthly rise in the CPI reversed September's decline but left the annual inflation rate unchanged at minus 0.1 percent. This was the third month in a row that inflation has been either zero or below.

The main upward pressure on the change in the annual rate came from clothing and footwear where prices rose 2.0 percent on the month compared with a 0.6 percent increase during the same period a year ago. The other principal boost was from recreation and culture where a 0.8 percent monthly gain this year was double the rate posted in 2014. Downside pressure was concentrated in education (3.6 percent versus 7.9 percent a year ago) and food and non-alcoholic beverages (minus 0.4 percent versus 0.1 percent).

The core CPI rose 0.3 percent on the month to nudge its yearly rate up to 1.1 percent from 1.0 percent last time, a 3-month high.

Today's outcome was in line with the Bank of England's October forecast and should have no immediate implications for monetary policy. Despite the gentle acceleration in underlying prices, the overall picture remains very weak and raising Bank Rate in the current environment would be very difficult to sell even should the MPC want to tighten now. A move before the second half of next year remains very unlikely.

The consumer price index (CPI) is defined as an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using HICP methodology developed by Eurostat, the European Union's statistical agency. The CPI is the Bank of England's inflation measure.

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 UK, 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.

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.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. 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.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.