Thu Mar 31 04:00:00 CDT 2016

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

Consumer prices were provisionally a little stronger than expected in March. A 0.2 percent monthly rise was just firm enough to lessen the annual rate of deflation from 0.3 percent to 0.2 percent, still some 0.5 percentage points short of its January mark.

The flash HICP was up a largely seasonal 2.0 percent versus mid-quarter to stand 0.3 percent lower on the year after a 0.4 percent annual decline in February.

As usual the bulk of the downward pressure on the change on the annual rate came from weakness in the energy market where decrease in February. However, inflation in leisure and culture picked up from 1.0 percent to 1.2 percent and deflation in communications eased from 0.6 percent to 0.1 percent. As a result, core inflation (ex-energy and unprocessed food) crept a tick higher to 0.6 percent.

In line with other European countries the modest rise in Italian inflation this month may have simply been attributable to the effects of an early Easter. Either way, both the headline and underlying rates remain dangerously low.

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.