Thu May 31 01:45:00 CDT 2018

Consensus Actual Previous
Month over Month 0.2% 0.4% 0.2%
Year over Year 1.8% 2.0% 1.6%

Consumer prices were firm in May. A provisional 0.4 percent monthly rise was large enough to lift the annual inflation rate by 0.4 percentage points to 2.0 percent, its highest reading since August 2012.

The flash HICP was equally robust, also climbing 0.4 percent versus April to stand 2.3 percent higher on the year, a hefty 0.5 percentage point gain from last time.

However, most of the work was done by the more volatile categories. Hence, annual inflation in energy jumped from 6.3 percent to fully 10.0 percent while fresh food rose from 3.9 percent to 4.9 percent. More importantly, the rate in services was only flat at 1.4 percent while deflation in manufacturing (0.1 percent after 0.2 percent) was minimally less marked.

Consequently, core inflation was probably little changed this month. Still, the jump in the headline measure could provide a boost to inflation expectations which, in turn, could help to promote a higher underlying rate further down the road.

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.