Fri Jul 14 03:00:00 CDT 2017

Consensus Actual Previous
Month over Month -0.1% -0.1% -0.1%
Year over Year 1.2% 1.2% 1.2%

Final consumer prices in June showed no revision to their flash estimate. A 0.1 percent monthly dip reduced annual inflation from its final 1.4 percent mark in May to 1.2 percent, its weakest outturn since January.

The flash HICP was similarly unrevised and so still shows a 0.2 percent drop versus May and a 1.2 percent annual rate, down 0.4 percentage points from last time.

However, core inflation, which excludes fresh food and energy, was also confirmed at 0.9 percent yearly rate, up from 0.7 percent in mid-quarter. Rather, downward pressure on the headline came mainly from the more volatile subsectors, notably unprocessed food (1.4 percent after 3.8 percent) and unregulated energy (2.9 percent after 6.8 percent).

Apart from a decent January, retail sales have shown no growth so far in 2016 and weakness here has effectively put a lid of consumer prices. The bounce in the core index last month is mildly promising but is likely to prove short-lived with consumer confidence still trending down.

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.