| Consensus | Actual | Previous | |
|---|---|---|---|
| HICP - Y/Y | 2.4% | 2.4% | 2.4% |
| Narrow Core - Y/Y | 2.8% | 2.7% | 2.9% |
Highlights
Inflation provisionally held steady in April. A 0.6 percent monthly rise in the flash HICP left the annual rate at March's final 2.4 percent, in line with the market consensus and still matching its lowest mark since July 2021. Accordingly, the headline rate remains just 0.4 percentage points above its medium-term target.
However, there was more good news on the core. The narrowest measure dipped 0.2 percentage points to 2.7 percent, a tick below forecast and equalling its weakest print since January 2022. Moreover, excluding just energy and unprocessed food, the rate dropped fully 0.3 percentage points to 2.8 percent. Elsewhere the picture was also pleasantly reassuring. Inflation in non-energy industrial decreased again, from 1.1 percent to 0.9 percent but, more importantly, the rate in services finally moved off 4.0 percent, declining 0.3 percentage points to 3.7 percent. This was the latter's lowest reading since June 2022. Energy (minus 0.6 percent after minus 1.8 percent) provided another boost and food, alcohol and tobacco (2.8 percent after 2.6 percent) similarly offered a small lift.
Regionally, headline inflation was flat in France (2.4 percent) but rose in Germany (2.4 percent after 2.3 percent) and Spain (3.4 percent after 3.3 percent). Italy (1.0 percent after 1.2 percent) was the only member of the larger four economy group to record a fall and also the only one in that set below the 2 percent target.
The flash April data should go down very well at the ECB. It will not be concerned that the headline rate held steady. Rather it will focus on the surprisingly sharp drop in the core rates and the marked, albeit overdue, deceleration in services. Underlying trends remain in the right direction and today's update should all but guarantee a 25 basis point cut in key interest rates in June. Today's reports put the Eurozone RPI at minus 10 and the RPI-P at exactly zero. Limited underperformance by economic activity in general is solely due to unexpectedly soft prices just what the central bank wants to see.
However, there was more good news on the core. The narrowest measure dipped 0.2 percentage points to 2.7 percent, a tick below forecast and equalling its weakest print since January 2022. Moreover, excluding just energy and unprocessed food, the rate dropped fully 0.3 percentage points to 2.8 percent. Elsewhere the picture was also pleasantly reassuring. Inflation in non-energy industrial decreased again, from 1.1 percent to 0.9 percent but, more importantly, the rate in services finally moved off 4.0 percent, declining 0.3 percentage points to 3.7 percent. This was the latter's lowest reading since June 2022. Energy (minus 0.6 percent after minus 1.8 percent) provided another boost and food, alcohol and tobacco (2.8 percent after 2.6 percent) similarly offered a small lift.
Regionally, headline inflation was flat in France (2.4 percent) but rose in Germany (2.4 percent after 2.3 percent) and Spain (3.4 percent after 3.3 percent). Italy (1.0 percent after 1.2 percent) was the only member of the larger four economy group to record a fall and also the only one in that set below the 2 percent target.
The flash April data should go down very well at the ECB. It will not be concerned that the headline rate held steady. Rather it will focus on the surprisingly sharp drop in the core rates and the marked, albeit overdue, deceleration in services. Underlying trends remain in the right direction and today's update should all but guarantee a 25 basis point cut in key interest rates in June. Today's reports put the Eurozone RPI at minus 10 and the RPI-P at exactly zero. Limited underperformance by economic activity in general is solely due to unexpectedly soft prices just what the central bank wants to see.
Market Consensus Before Announcement
Consensus for April's HICP flash is 2.4 percent and 2.8 percent for the narrow core. These would compare respectively with March's 2.4 and 2.9 percent, the former versus February's 2.6 percent and the latter versus 3.1 percent.
Definition
The flash harmonised index of consumer prices (HICP) provides an early estimate of the final HICP, but using just partial data. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Final data are released a round two weeks later. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Two of these are made available in the flash report amongst which financial markets normally concentrate upon the narrowest which excludes energy, food, alcohol and tobacco.
Description
The measure of choice in the Eurozone is the harmonized index of consumer prices (HICP) 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 Eurozone, 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.
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.
