FR: CPI


Wed Jan 31 01:45:00 CST 2018

Consensus Actual Previous
Month over Month -0.3% -0.1% 0.3%
Year over Year 1.1% 1.4% 1.2%

Highlights
Consumer prices provisionally slipped 0.1 percent on the month in January. The fall was seasonally small and weak enough to lift the annual inflation rate from December's final 1.2 percent to 1.4 percent, equalling its highest reading since October 2012.

The flash HICP also fell 0.1 percent versus December and, as a result, saw its yearly rate climb a tidy 0.3 percentage points to 1.5 percent.

The acceleration in the annual CPI rate was mainly attributable to services where inflation moved up from 1.0 percent to 1.3 percent. However, manufacturing finally dragged itself out of deflation, posting a 0.1 percent rate, up from minus 0.1 percent last time. Energy (5.2 percent after 5.0 percent) also had a small positive effect but with food inflation (1.2 percent after 1.3 percent) slightly softer, the signs are that the core rate probably firmed somewhat.

The bounce in headline inflation at the start of the year comes as something of a surprise but offers hope that the improving real economy is starting to provide prices with a boost. It remains to be seen whether or not it can be sustained but the ECB for one will certainly be hoping so.

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.