FR: CPI


Thu Aug 11 01:45:00 CDT 2016

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

Highlights
Consumer prices were unrevised in the final data for July. As previously reported, a 0.4 percent monthly decline saw the annual inflation rate hold steady at June's 0.2 percent, matching its highest reading in more than a year.

There were similarly no amendments to the HICP which still shows a 0.4 percent decline versus June and a 0.4 percent yearly rise, up just a tick from last time.

The drop in headline prices was largely due to seasonal weakness in manufacturing and charges here were down 2.9 percent on the month after a 3.1 percent decrease a year ago. Clothing and footwear (minus 14.2 percent) had the most significant negative impact but other manufactured products (minus 1.0 percent) also weighed. By comparison, food (0.1 percent) and services (1.0 percent) were buoyant, the latter boosted by the usual seasonal gains in holiday prices posted every July. However, energy prices fell 1.3 percent, their first decline in five months.

As a result, underlying inflation cooled with a 0.1 percent fall on the month in the core index reducing its annual rate by 0.2 percentage points to 0.5 percent.

French inflation continues to hover dangerously close to the zero mark and with the real economy only stagnating last quarter, could be subject to yet further downside risk near-term.

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. A flash estimate was released for the first time in January 2016 and is now published towards the end of each reference month.

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.