Release Explanation: The CPI measures the average price of a fixed market basket of goods and services purchased by consumers, and therefore gives an overall read of Inflationary pressures. It is the most widely used Inflation indicator of Central Banks, Institutions, and Governments. It is used to calculate Cost of Living numbers for Government programs. Each regional Central Bank will have their own CPI Target rate, and each will differ in line with the way they individually want to control the aspects of their own economies.

Trade Desk Thoughts:
Inflation fell in January to 1.1% from one-year earlier, in-line with the Flash CPI forecast. The strong declines in CPI sub-indexes helped the inflation gauge reach the 2% target much earlier than forecast. However, the core CPI fell more than expected, 1.6% vs 1.8%. The 12 month average rate in the Euro-area was 3.1% throughout 2008.

The main components with the highest monthly rates were alcohol & tobacco (0.6%), food and housing (0.5% each), while the lowest were clothing (-10.6%), recreation & culture (-2.0%) and hotels & restaurants (-0.6%). In particular, restaurants & cafés (+0.08%) had the largest upward impact, while garments (-0.57%), packaged holidays (-0.20%) and footwear (-0.10%) had the biggest downward impacts.

Forex Technical Reaction: The euro had little reaction to the news release. Since the new trading day started, the pair fell 80 pips and is currently trading just below TheLFB S1 (1.2775).