| Consensus | Actual | Previous | |
|---|---|---|---|
| Month over Month | 0.6% | 0.4% | 0.4% |
| Year over Year | 2.3% | 2.2% | 2.5% |
| HICP - M/M | 0.7% | 0.6% | 0.6% |
| HICP - Y/Y | 2.4% | 2.3% | 2.7% |
Highlights
Inflation fell again in March and by more than expected. A provisional 0.4 percent monthly increase in consumer prices was a couple of ticks less than the market consensus and small enough to trim the annual inflation rate from February's final 2.5 percent to 2.2 percent, matching its lowest level since April 2021.
Flash HICP inflation moved in the same direction with a 0.6 percent monthly rise in the index reducing the yearly rate from 2.7 percent to 2.3 percent, now only 0.3 percentage points above the ECB's target.
However, the deceleration in the annual CPI rate was in large part due to food (minus 0.7 percent after 0.9 percent) and, to a lesser extent, energy (minus 2.7 percent after minus 2.4 percent). Falls here helped to slash inflation in overall goods from 1.8 percent to 1.0 percent but also served to mask a 0.3 percentage point increase in the rate in services to 3.7 percent. Consequently, the core rate edged just a tick lower to 3.3 percent.
For the ECB today's inflation update will be something of a mixed bag. The central bank will be pleased with the drop in the headline and core rates but will be less than happy about the continued stickiness of prices in services. And it is this sector upon which it is placing increasing focus. Still, combined with the HICP data already reported in France (2.4 percent after 3.2 percent), Italy (1.3 percent after 0.8 percent) and Spain (3.2 percent after 2.9 percent), the German data support expectations for another drop in tomorrow's flash headline and core inflation rates for the overall Eurozone. The German report trims the national RPI to 18 and the RPI-P to 34. Economic activity in general continues to run ahead of market expectations.
Flash HICP inflation moved in the same direction with a 0.6 percent monthly rise in the index reducing the yearly rate from 2.7 percent to 2.3 percent, now only 0.3 percentage points above the ECB's target.
However, the deceleration in the annual CPI rate was in large part due to food (minus 0.7 percent after 0.9 percent) and, to a lesser extent, energy (minus 2.7 percent after minus 2.4 percent). Falls here helped to slash inflation in overall goods from 1.8 percent to 1.0 percent but also served to mask a 0.3 percentage point increase in the rate in services to 3.7 percent. Consequently, the core rate edged just a tick lower to 3.3 percent.
For the ECB today's inflation update will be something of a mixed bag. The central bank will be pleased with the drop in the headline and core rates but will be less than happy about the continued stickiness of prices in services. And it is this sector upon which it is placing increasing focus. Still, combined with the HICP data already reported in France (2.4 percent after 3.2 percent), Italy (1.3 percent after 0.8 percent) and Spain (3.2 percent after 2.9 percent), the German data support expectations for another drop in tomorrow's flash headline and core inflation rates for the overall Eurozone. The German report trims the national RPI to 18 and the RPI-P to 34. Economic activity in general continues to run ahead of market expectations.
Market Consensus Before Announcement
March's consensus is a year-over-year 2.3 percent versus February's 2.5 percent rate that was down from 2.9 percent in January. Consensus for the harmonised data is 2.4 percent which would compare with 2.7 percent in February.
Definition
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.
Description
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 Germany 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, Germany's interest rates are set by the European Central Bank.
Germany 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. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Wuerttemberg, Saxony, Hesse, Bavaria and Brandenburg. The preliminary estimate of the CPI follows in the same day after the last of the state releases. The data are revised about two weeks after preliminary release.
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.
Germany 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. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Wuerttemberg, Saxony, Hesse, Bavaria and Brandenburg. The preliminary estimate of the CPI follows in the same day after the last of the state releases. The data are revised about two weeks after preliminary release.
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.
