Mon Jul 31 04:00:00 CDT 2017

Consensus Actual Previous
Month over Month 0.1% 0.1% -0.1%
Year over Year 1.1% 1.1% 1.2%

Consumer prices provisionally rose 0.1 percent on the month in July. The outcome, which matched market expectations, put the annual inflation rate at 1.1 percent, a tick short of its final June outturn and its lowest reading so far in 2017.

The flash HICP fell a largely seasonal 1.9 percent versus June which nudged down its yearly rate from 1.9 percent to 1.8 percent.

The headline annual CPI rate was biased down by weaker inflation in regulated (5.1 percent after 6.2 percent) and unregulated (3.2 percent after 4.1 percent) energy. Food and drink (0.9 percent after 1.0 percent) also lost a little ground. However, the core index, which excludes energy and fresh food, similarly shed 0.1 percentage points to 0.8 percent and so reversed half of its June bounce.

Underlying inflation developments remain weak. The familiar story of soft consumer demand still holds and effectively caps firms' ability to raise prices. There is little to suggest that this will change any time soon.

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.