Thu Aug 31 01:45:00 CDT 2017

Consensus Actual Previous
Month over Month 0.4% 0.5% -0.3%
Year over Year 0.8% 0.9% 0.7%

Consumer prices provisionally rose a monthly 0.5 in August. The increase, which was broadly in line with the seasonal pattern for mid-quarter, put the annual inflation rate at 0.9 percent, a 0.2 percentage point increase versus July's final print and a 4-month high.

The flash HICP advanced a monthly 0.6 percent to stand 1.0 percent above its level a year ago, also up a couple of ticks from last time.

The monthly increase in the CPI was largely attributable to a seasonal rebound in manufactured goods prices and some holiday related effects on services. In fact, the yearly inflation rate in manufacturing actually dipped from minus 0.4 percent to minus 0.6 percent, although it did edge a tick firmer to 1.1 percent in services. Rather, the principal boost to annual headline inflation came from energy, where the rate climbed fully 3 percentage points to 4.9 percent. Food (0.6 percent after 0.7 percent) had a minimal negative impact.

Following the increase reported in the provisional German data yesterday, today's French update further boosts the likelihood of a pick-up in inflation in the flash Eurozone report for August due later this morning. However, it still looks as if the key core rates will be little changed.

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.