Thu Apr 27 07:00:00 CDT 2017

Consensus Actual Previous
Year over Year 1.9% 2.0% 1.6%
Month over Month -0.1% 0.0% 0.2%

Inflation rebounded, and by slightly more than expected, in April. Consumer prices were provisionally flat on the month which was enough to see the annual inflation rate climb 0.4 percentage points to 2.0 percent, reversing much of March's hefty 0.6 percentage point decline. As such the data would seem to confirm that differences in the timing of Easter (March in 2016, April this year) had a significant impact on the March/April profile.

The HICP followed a similar pattern, also showing no change from its final March level and a yearly rate of 2.0 percent, up from 1.5 percent last time.

Not surprisingly given the holiday distortions, the main boost to the change in the annual CPI rate came from services where inflation jumped from 0.7 percent to 1.7 percent, a tick above its February mark. Elsewhere, rent, excluding utilities edged up from 1.6 percent to 1.7 percent while energy was flat at 5.1 percent. By contrast, overall goods inflation dropped 0.3 percentage points to 2.2 percent and food also weighed, slowing from 2.3 percent to 1.8 percent.

The pick-up in German inflation increases the likelihood of a rise in the full Eurozone rate when the flash HICP report is released tomorrow. Easter effects cloud the underlying performance but in Germany at least, core inflation would seem to be creeping slowly higher.

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.