January 16, 2017 03:00 CST

Consensus Actual Previous
Month over Month 0.4% 0.4% 0.4%
Year over Year 0.5% 0.5% 0.5%

The final December CPI showed no changes to the provisional data. A 0.4 percent monthly increase in prices saw the annual inflation rate climb 0.4 percentage points to 0.5 percent, equalling its highest mark since April 2014.

The flash HICP was similarly unrevised and so also still shows a 0.4 percent increase versus November and a 0.5 percent yearly rate, up from November's final 0.1 percent.

As previously indicated, the acceleration in overall prices was largely due to the more volatile sectors. Hence, the annual inflation rate in food rose from 0.0 percent to 0.8 percent while non-regulated energy was up 2.1 percentage points at 2.4 percent. Elsewhere, leisure and culture gained 0.2 percentage points to 0.5 percent and the other goods and services category 0.2 percentage points to 0.9 percent. The core index, which excludes fresh food and energy, was a couple of ticks firmer at 0.6 percent, again in line with its flash estimate.

Today's data have no implications for the final December inflation report for the entire Eurozone, due Wednesday.

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.

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. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

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.