April 13, 2017 03:00 CDT

Consensus Actual Previous
Month over Month 0.0% 0.0% 0.0%
Year over Year 1.4% 1.4% 1.4%

March consumer prices were unrevised in the final report. A flat reading on the month put the annual inflation rate at 1.4 percent, down from 1.6 percent in February, for its first decline since October 2016.

By contrast, the HICP was adjusted a tick firmer to yield a largely seasonal 1.9 percent monthly jump and also a 1.4 percent yearly rate, similarly down from 1.6 percent in mid-quarter.

Within the CPI basket, the main downward pressure on the annual inflation rate came from food and drink where prices fell 1.2 percent on the month to reduce their yearly rate from 3.8 percent to 2.8 percent. Unregulated energy similarly subtracted as its annual rate eased from 12.1 percent to 11.3 percent. As a result, the core index, which excludes unprocessed food and energy, saw its 12-month rate edge a tick firmer to 0.7 percent, also as indicated in the provisional release.

The monthly CPI data remain quite volatile but underlying inflation has been quite stable for more than a year a now. A similar pattern looks likely to hold through the remainder of 2017.

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 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.