EMU: HICP


Thu Apr 14 04:00:00 CDT 2016

Consensus Actual Previous
Month over Month 1.2% 1.2% 0.2%
Year over Year -0.1% 0.0% -0.2%

Highlights
An as expected 1.2 percent monthly rise in the HICP saw the annual rate of inflation in the Eurozone nudged a tick firmer to 0.0 percent in the final estimate for March. This was 0.2 percentage points above its final February outturn and avoided what would have been the first back-to-back sub-zero yearly readings since January/February 2015.

The annual core rates were mixed. Hence, while the narrowest measure, which excludes energy, food, alcohol and tobacco, climbed an unrevised 0.2 percentage points from February to an annual 1.0 percent rate, the HICP omitting just energy and unprocessed food was raised a tick to also 1.0 percent. Again this was 0.2 percentage points up on its final mid-quarter print. Meanwhile, the first look at the index without only energy and seasonal food yielded a 0.9 percent rate versus 0.8 percent last time.

However, while the acceleration in all three gauges is promising, the rises only reverse the falls seen in February. To all intents and purposes underlying inflation has been trending sideway since late 2015.

The March inflation data say little, if anything, about the likely impact of the ECB's latest easing package. Indeed, they were probably biased up to some extent by the early Easter this year which, if so, will make for some downside bias to the April outturn. Moreover, financial markets lack patience and will soon be looking for signs that underlying trends are beginning to move up on a sustainable basis. Otherwise, speculation about yet more monetary stimulus will not be far away.

Definition
The harmonized index of consumer prices (HICP) is an internationally comparable measure of inflation calculated by each member of the European Union using a specific formula. Since January 1999, the European Central Bank has used the HICP as its target measure of inflation.

Description
The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB'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 HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.