Wed May 16 04:00:00 CDT 2018

Consensus Actual Previous
Month over Month 0.1% 0.1% 0.1%
Year over Year 0.5% 0.5% 0.5%

Consumer prices showed an unrevised 0.1 percent monthly increase in April. This left the annual inflation rate at just 0.5 percent, down fully 0.3 percentage points from its final March print and equalling its lowest reading since November 2016.

The flash HICP was similarly unamended with a 0.5 percent monthly rise and a 0.6 percent yearly rate, also 0.3 percentage points short of its final March outturn.

As previously reported, the main negative impact on the change in the annual CPI rate came from unregulated energy (minus 1.2 percent after 5.0 percent) and communications services (minus 0.7 percent after 0.4 percent). A partial offset was provided by food (1.3 percent after 0.5 percent). As a result, the core index, which excludes energy and fresh food, declined 0.2 percentage points to just a 0.5 percent yearly rate.

The early Easter this year certainly seems to have helped to distort the inflation profile in March/April. However, the underlying picture clearly remains ominously soft.

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.