FR: CPI


Fri Jul 29 01:45:00 CDT 2016

Actual Previous
Month over Month -0.4% 0.1%
Year over Year 0.2% 0.2%

Highlights
Consumer prices provisionally posted a 0.4 percent monthly decrease in July which left the annual inflation rate unchanged from its final 0.2 percent mark in June.

The flash HICP similarly dropped a monthly 0.4 percent but this was small enough to see its yearly rate edge a tick firmer to 0.4 percent.

Within the CPI, upward pressure on the monthly change in the annual rate mainly came from food, where the inflation rate climbed from 0.6 percent to 1.2 percent (fresh produce 8.3 percent after 3.5 percent). Energy (minus 3.3 percent after minus 3.1 percent) had a small negative impact. Overall goods inflation was minus 0.3 percent, a couple of ticks up on last time, but services fell by the same amount to 0.8 percent.

Without the bounce in food prices headline inflation would have fallen this month so the signs are that underlying trends remain worryingly weak. Today's report increases the likelihood of subdued core rates in the full Eurozone flash data due later this morning.

Definition
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 represent the main rates of inflation. The national CPI is released alongside the HICP, Eurostat's harmonized measure of consumer prices.

Description
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 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, France's interest rates are set by the European Central Bank.

France 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.

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.