January 3, 2017 01:45 CST

Consensus Actual Previous
Month over Month 0.2% 0.3% 0.0%
Year over Year 0.7% 0.6% 0.5%

Inflation provisionally accelerated again in December. A 0.3 percent monthly rise in consumer prices lifted their annual rate from 0.5 percent in mid-quarter to 0.6 percent, its highest level since May 2014.

The HICP followed a similar pattern, also gaining 0.3 percent versus November for a 0.8 percent annual rate, up from 0.7 percent last time.

However, the overall acceleration was essentially just attributable to stronger gains in the more volatile sectors. Hence, within the CPI the yearly rate more than doubled in both energy (to 4.3 percent) and food (to 0.7 percent), the latter boosted by a particularly sharp jump in fresh produce (5.5 percent after 2.2 percent). More significantly, inflation in services dipped a tick to 0.9 percent while deflation in manufacturing rose ominously to 0.9 percent from 0.6 percent.

Consequently, today's headline data are misleadingly firm and mask a weaker underlying picture. The real economy may have picked up some momentum last quarter but, in what remain extremely tight product markets, it will probably need to grow sustainably faster to have any meaningful impact on consumer prices.

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.

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.