January 18, 2017 01:00 CST

Consensus Actual Previous
Month over Month 0.7% 0.7% 0.7%
Year over Year 1.7% 1.7% 1.7%

Consumer prices were unrevised in the final report for December. A 0.7 percent monthly rise in the CPI matched its preliminary estimate to yield a 1.7 percent annual inflation rate, up a full 0.9 percentage points from the final November reading.

The final HICP was similarly in line with its flash print, increasing 1.0 percent from mid-quarter for a 1.7 percent 12-month change, a full 1 percentage point above its mark last time.

As indicated earlier, energy provided a major boost to the headline annual inflation rate and prices here were up 2.5 percent on the year having fallen 2.7 percent in November. Food (2.5 percent after 1.2 percent) also had a significant positive impact. Excluding energy, prices were 0.6 percent firmer on the month and 1.6 percent stronger than a year ago, up from 1.2 percent. Elsewhere, clothing and shoes (2.1 percent after 1.6 percent) and leisure and entertainment (1.8 percent after 1.0 percent) were supportive too.

The final December data confirm a marked acceleration in German inflation at year-end. Crucially too from the perspective of the ECB, they also point to some firming in underlying prices. This should be similarly apparent, to a lesser extent, in the final December HICP data for the entire Eurozone, due later this morning.

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.

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 Germany 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, Germany's interest rates are set by the European Central Bank.

Germany 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. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Württemberg, Saxony, Hesse, Bavaria and Brandenburg. The release date is not announced in advance but the preliminary estimate of the CPI follows in the same day after the last of state releases. The data are revised about two weeks after preliminary release.

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.