Wed Mar 30 07:00:00 CDT 2016

Consensus Actual Previous
Month over Month 0.6% 0.8% 0.4%
Year over Year 0.1% 0.3% 0.0%

Consumer prices were a good deal stronger than expected in March. A provisional 0.8 percent monthly rise in the headline CPI was enough to lift annual inflation back into positive territory although, at just 0.3 percent, this still equalled its second weakest reading since September 2015.

The flash HICP was also up a monthly 0.8 percent which boosted its yearly rate by 0.3 percentage points to 0.1 percent.

Within the CPI basket the main boost to the change in the total yearly rate came from services where prices were 1.6 percent higher on the year after a 0.9 percent increase in February. Food (1.3 percent after 0.8 percent) similarly had a positive impact but energy prices, despite rising quite sharply on the month, subtracted as their annual rate of decline steepened from 8.5 percent to 8.9 percent. At minus 1.2 percent, overall goods inflation was a tick weaker than last time while rent (excluding utilities) was steady at 1.1 percent.

The surprisingly sharp acceleration in German inflation is consistent with an anticipated rise in the full Eurozone rate (data due tomorrow) and probably makes for some additional upside risk. Importantly, the German data also point to a modest increase in the core rates. That said, an early Easter is likely to have given a helping hand to fresh food and package holiday charges in which case April's report could see at least a partial reversal.

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.