Inflation

What is inflation?

Inflation is the sustained and generalincrease in the price level of goods and services consumed. Given its potential impact on the economy, monetary institutions seek to ensure stable prices.

The 3 main measures of inflation

1 - The Harmonized Index of Consumer Prices (HICP)

Inflation is calculated by European institutions using the Harmonized Index of Consumer Prices (HICP) published by Eurostat.  
It measures the change over time in the prices of consumer goods and services based on the observation of a fixed basket of goods and services, updated annually.

2 - Underlying inflation 

Underlying inflation is measured using the consumer price index excluding energy and food products – whose prices can cause significant temporary variations in the general price level measured by current retail price indices.

3 - The inflation breakeven point 

This term refers to the difference between the yield of a "classic" government bond and the yield of an inflation-indexed bond for the same issuer and for an identical maturity.

Thanks to the calculation of the breakeven inflation rate, markets indicate at any time their anticipation of inflation trends, which serves as a valuable indicator for central banks in guiding their monetary policy.

What are the daily consequences of inflation?

As a general rule, inflation is synonymous with an increase in the cost of daily living.  
However, on an individual level, its effects largely depend on consumption habits.  
In a dynamic labor market, employees are likely to be able to offset some of the consequences of inflation through wage increases and thus maintain their purchasing power.  
Regarding savings, we must keep in mind that over time, inflation erodes purchasing power in the long term and therefore prompts us to pay attention to real returns (returns adjusted for inflation).