FR: CPI


Thu Jun 14 01:45:00 CDT 2018

Consensus Actual Previous
Month over Month 0.4% 0.4% 0.4%
Year over Year 2.0% 2.0% 2.0%

Highlights
Consumer prices showed a 0.4 percent monthly rise in the final data for May. This was in line with their provisional estimate and left intact the previously reported 2.0 percent annual rate, itself up 0.4 percentage points from its final April mark.

However, the flash HICP was revised 0.1 percentage points firmer to show a 0.5 percent monthly increase although this too left the yearly rate unchanged at 2.3 percent after a final 1.8 percent print last time.

The monthly acceleration in the annual CPI rate was largely due to energy, where inflation jumped from 6.3 percent to 10.0 percent, and to a lesser extent, food, which saw a 0.2 percentage point rise to 1.8 percent. Manufacturing continued to see falling prices down 0.2 percent on the year after a 0.3 percent decline in April but services gained a tick to 1.5 percent. Core prices were 0.2 percent firmer on the month which was enough to lift their yearly rate from 0.8 percent to 1.0 percent. While hardly a threat to price stability, this was still a multi-year high.

The final statistics for May confirm a relatively robust month for consumer prices. However, with Easter distortions still likely a factor and the real economy having slowed significantly this year, the pick-up in inflation could yet prove only short-lived.

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.