FR: CPI


Wed Oct 12 01:45:00 CDT 2016

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

Highlights
There were no revisions to the flash CPI data in the final report for September. Overall consumer prices were down 0.2 percent on the month to yield a 0.4 percent annual inflation rate, up from 0.3 percent in August.

The HICP was similarly unrevised and so still shows a 0.2 percent drop versus mid-quarter and a 0.5 percent yearly gain, also a tick higher than last time.

As previously indicated, the monthly drop in prices was largely due to a seasonal decline in certain service sector charges, particularly concerning the tourism category. Hence, air fares fell some 18.2 percent and package holiday costs were 17 percent less expensive. Food (minus 0.5 percent) also had a negative effect as fresh products slumped 2.5 percent. Overall private sector prices were 1.1 percent lower. By contrast manufacturing product prices rose 0.2 percent and energy was up 0.8 percent on the back of a 1.4 percent bounce in oil.

Seasonally adjusted the CPI edged just 0.1 percent higher in September but the core index was up a slightly firmer 0.2 percent, enough to lift the underlying annual rate by 0.3 percentage points to 0.7 percent, a level not seen since June. Base effects will help to boost yearly inflation over coming months but it remains to be seen whether or not the economy can start to generate any real inflation pressures of its own accord.

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.