IT: CPI


Thu Dec 14 03:00:00 CST 2017

Consensus Actual Previous
Month over Month -0.2% -0.2% -0.2%
Year over Year 0.9% 0.9% 0.9%

Highlights
Final consumer prices fell an unrevised 0.2 percent on the month in November. This left the annual inflation rate at its provisional 0.9 percent mark, a tick short of its final October reading.

The flash HICP was similarly unrevised and so still shows a 0.2 percent monthly decline and a 1.1 percent yearly rate, in line with its final October outturn.

As previously indicated, the dip in the annual CPI rate was due to softer inflation in unprocessed food (3.2 percent after 3.8 percent) and recreational, cultural and personal care services (0.9 percent after 1.4 percent). The negative effects here were almost offset by a faster rise in unregulated energy (5.0 percent after 4.3 percent). As a result, core inflation (which excludes energy and fresh food) slipped from 0.5 percent to just 0.4 percent.

The third successive decline in the core inflation rate emphasises the lack of any real upside pressure on consumer prices. The output gap is large enough that economic growth will probably have to achieve and sustain notably faster rates if underlying inflation is to get anywhere near the 2 percent mark.

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 provide widely used measures of inflation. A provisional estimate, with limited detail, is released about two weeks before the final data are reported.

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 such as the Italy 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, Italy's interest rates are set by the European Central Bank.

Italy like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

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.