IT: CPI


Fri Mar 16 04:00:00 CDT 2018

Consensus Actual Previous
Month over Month 0.1% 0.0% 0.1%
Year over Year 0.6% 0.5% 0.6%

Highlights
Consumer prices were slightly weaker than originally reported in February. The monthly change was revised down from 0.1 percent to 0.0 percent, in turn reducing the annual inflation rate by a tick to 0.5 percent. This was some 0.4 percentage points short of its final January mark and equalled its lowest outcome since November 2016.

At the same time, the flash HICP was trimmed by an unusually large 0.2 percentage points to leave a 0.5 percent drop on the month and a 0.5 percent yearly rate, down sharply from a final 1.2 percent print last time.

The deceleration in the annual CPI rate was mainly due to falls in inflation in food and drink (minus 0.8 percent after 1.3 percent) and regulated energy (5.3 percent after 6.4 percent). Consequently, the core rate, which excludes fresh food and energy, was steady at January's 0.6 percent, although even this still constituted a 0.1 percentage point dip versus its provisional reading.

The overall annual inflation rate is now fully 1.4 percentage points below its April 2017 high. The underlying rate has hardly moved but the risk is that a sustained run of weak headline figures puts fresh downside pressure on inflation expectations. If so, the core rate could start to slip too, and from current levels, there is not much room before deflation becomes a serious problem again.

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.