Fri Nov 11 01:00:00 CST 2016

Consensus Actual Previous
Month over Month 0.2% 0.2% 0.2%
Year over Year 0.8% 0.8% 0.8%

The final version of October consumer prices showed an unrevised 0.2 percent monthly rise. This made for a 0.8 percent annual inflation rate, also in line with its earlier estimate and up from a final 0.7 percent rate in September. The yearly rate is now 0.9 percentage points above its April low and equals it highest reading since June 2014.

The HICP was similarly unrevised and so also still shows a 0.2 percent increase versus the previous month and a 0.7 percent annual rate, a couple of ticks firmer than at quarter-end.

However, energy prices again provided a useful boost to the increase in the 12-month inflation rate as a 1.4 percent fall last month was significantly smaller than September's 3.6 percent decline. Indeed, excluding energy, the CPI edged up only 0.1 percent versus September and, at 1.1 percent, its annual rate was a tick lower. Elsewhere, clothing and footwear prices rose a largely seasonal 1.7 percent on the month while package holidays were 3.4 percent cheaper for the same reason.

In line with much of Europe, the rebound in German headline inflation since the middle of the year has been dominated by developments in the energy markets. However, in contrast to many Eurozone states, there has also been some strengthening in underlying prices. The effects of tightening labour markets and higher wages are gradually feeding through into consumer prices and the ECB will hope to see much more of this over coming months and quarters.

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

Germany 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. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Württemberg, Saxony, Hesse, Bavaria and Brandenburg. The release date is not announced in advance but the preliminary estimate of the CPI follows in the same day after the last of state releases. The data are revised about two weeks after preliminary release.

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.