Tue Oct 31 05:00:00 CDT 2017

Consensus Actual Previous
Month over Month -0.1% -0.2% -0.3%
Year over Year 1.3% 1.0% 1.1%

Consumer prices provisionally fell 0.2 percent on the month in October. This was weak enough to reduce the annual inflation rate from 1.1 percent to 1.0 percent, its second successive decline and equalling its lowest mark since December 2016.

The flash HICP was unchanged at its final September level which, in turn, cut its annual rate from 1.3 percent to 1.1 percent.

The dip in annual CPI inflation was largely attributable to changes to rules on student contributions and this effect was only partially offset by faster growth of prices for unprocessed food (3.8 percent after 2.1 percent). Core inflation continued to unwind July's bounce; decreasing 0.2 percentage points to 0.5 percent to match its weakest print so far this year.

The October data reinforce the impression that the Italian output gap remains too large for underlying inflation to sustain any meaningful move up.

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.