FR: CPI


Fri Aug 11 01:45:00 CDT 2017

Consensus Actual Previous
Month over Month -0.3% -0.3% -0.3%
Year over Year 0.7% 0.7% 0.7%

Highlights
The final CPI report for July showed prices falling an unrevised 0.3 percent on the month for a 0.7 percent annual inflation rate, also in line with its provisional estimate and as well as matching the final June outturn.

The final HICP weighed in at minus 0.4 percent on the month and 0.8 percent on the year, again in line with its flash reading and similarly in line with its final June print.

On a monthly basis, the decrease in overall prices was driven by a significant seasonal drop in manufactured product prices (2.9 percent). This reflected summer sales, notably in clothing and footwear (14.8 percent). Energy was also down 1.3 percent. By contrast, service sector prices accelerated, posting a 1.0 percent bounce on the back of sharply higher air fares.

Seasonally adjusted, the CPI was only flat for the second month in a row. The core index was similarly steady at its June mark, although this was enough to nudge the underlying annual rate a tick firmer to (a still very soft) 0.5 percent.

Despite increasing signs of improvement in the French real economy, prices remain becalmed due to excess capacity and persistently tight product markets. Economic growth will need to sustain its recent pick-up if core inflation is to get anyway near the 2 percent mark over the foreseeable future.

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.