Highlights
Italian consumer prices rose an unrevised 0.1 percent on the month in October. The modest gain was sufficient to nudge the annual inflation rate a tick higher to 0.3 percent, also in line with the flash estimate.
Harmonised prices however, were marked slightly lower. Hence, the HICP now shows a 0.4 percent monthly gain (was 0.5 percent) and a 0.3 percent annual rate (0.4 percent), down a tick from the September pace.
On the month, there were few increases of more than 0.3 percent amongst the major sectors while prices in both the transportation and communications areas fell 0.3 percent.
The core CPI put underlying 12-month inflation at 1.3 percent, unchanged from the end of the third quarter and also unrevised from its preliminary estimate. In line with most EMU states, inflationary pressures in Italy continue very subdued. The slight downward revision to the national HICP also makes for some limited downside risk to the full EMU data due shortly.
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 changes in the CPI represent the rate of inflation.
Why Investor's Care 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.
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.