FR: CPI


Fri Sep 30 01:45:00 CDT 2016

Consensus Actual Previous
Month over Month -0.3% -0.2% 0.3%
Year over Year 0.5% 0.4% 0.2%

Highlights
Consumer prices provisionally fell 0.2 percent on the month in September. The decline, which was slightly short of market expectations, put annual inflation at 0.4 percent, up a couple of ticks from the final August rate thanks to positive base effects.

The flash HICP followed suit, also posting a 0.2 percent monthly dip that nudged its yearly rate 0.1 percentage points higher at 0.5 percent.

The increase in the annual CPI rate was in large part due to a smaller fall in energy prices which were down 1.2 percent on the year after a 3.0 percent drop in August. However, services (1.3 percent after 0.7 percent) also provided a lift with prices in the tourism industry falling less sharply this year compared with September 2015. However, manufactured products (minus 0.6 percent after minus 0.5 percent) slipped deeper into negative territory and food (0.4 percent after 1.5 percent) also subtracted.

The increase in French inflation is consistent with that reported in Germany just yesterday and should be reflected in at least a small rise in the full flash Eurozone September rate, due for release shortly.

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.