IT: CPI


Tue Jan 16 03:00:00 CST 2018

Consensus Actual Previous
Month over Month 0.4% 0.4% 0.4%
Year over Year 0.9% 0.9% 0.9%

Highlights
There were no revisions to the provisional CPI in December's final report. A monthly 0.4 percent increase in prices matched the earlier estimate and left the annual inflation rate at 0.9 percent, in line with its final November outturn.

The final HICP similarly matched its flash mark and so still shows a 0.3 percent monthly rise and a 1.0 percent yearly rate, down 0.1 percentage points from its final mid-quarter print.

As indicated in the provisional release, the main upside pressure on the monthly change in the annual CPI rate came from transport services (2.8 percent after 2.2 percent). However, this was offset by a slowdown in both non-processed foods (2.4 percent from 3.2 percent) and non-regulated energy (4.4 percent from 5.0 percent). As a result, the yearly core rate, which excludes fresh food and energy, held steady at 0.4 percent.

Underlying inflation in Italy continues to move sideways and, notwithstanding the recent improvement in the real economy, at a low enough level to mean that deflation risks cannot be ignored.

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.