Thu Aug 11 03:00:00 CDT 2016

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

The final CPI data for July showed no revisions to the flash figures released a couple of weeks ago. A 0.2 percent monthly increase in prices put the annual inflation rate at minus 0.1 percent, some 3 ticks higher than in the final June report and the highest print since January.

At the same time, the HICP was revised just 0.1 percentage points softer and now shows a (largely seasonal) 1.9 percent drop versus June and a similarly marginally steeper revised 0.2 percent decline from a year ago.

As previously indicated, within the CPI a 2.5 percent monthly bounce in transport related services and a 0.7 percent spike in recreational, cultural and personal care, both mainly due to seasonal factors, lay behind the headline gain. Even so, the core CPI, which excludes energy and unprocessed food, reversed June's dip with a 0.1 percentage point rise to a 0.6 percent annual rate.

There is nothing new of any significance in today's report which simply underlines the weakness of inflation trends in the Eurozone's third largest member state. As such, it helps to maintain pressure on the ECB to deliver another near-term monetary ease.

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. A provisional estimate, with limited detail, is released about two weeks before the final data are reported.

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.