Tue Oct 17 04:00:00 CDT 2017

Consensus Actual Previous
Month over Month 0.4% 0.4% 0.3%
Year over Year 1.5% 1.5% 1.5%

The final September HICP confirmed the annual 1.5 percent rate shown in the flash report. On the month, prices were up 0.4 percent, also in line with the market consensus.

Importantly, there were also no revisions to core inflation. Hence, compared with its final August print, the narrowest measure, which excludes energy, food, alcohol and tobacco, still shows a 0.1 percentage point dip in its yearly rate to 1.1 percent while both the other gauges were flat at 1.3 percent. Non-energy industrial goods inflation was (again) unchanged at 0.5 percent and the service sector rate a tick softer at 1.5 percent.

Today's report adds little new to the economic picture that the ECB will contemplate at next week's widely anticipated policy meeting. The likelihood remains high that investors will get their wish and receive at least a broad indication of how the central bank plans to taper its QE programme next year.

The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors.

The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

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.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. 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 HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.