Consumer prices rose an unrevised 0.3 percent on the month in December, trimming the headline annual inflation rate from November's final 11.8 percent to 11.6 percent.

The final HICP similarly matched its flash estimate, posting a 0.2 percent monthly gain that reduced its yearly rate from 12.6 percent to 12.3 percent, still fully 10.3 percentage points above the ECB's target.

However, the fall in the annual CPI inflation rate was largely attributable to weaker non-regulated energy (63.3 percent after 69.9 percent) and unprocessed food (9.5 percent after 11.4 percent) although transport (6.0 percent after 6.8 percent) also subtracted. Consequently, core inflation rose from 5.6 percent to an unrevised 5.8 percent.

In line with much of Europe, core inflation in Italy is proving a good deal stickier than the headline rate and it will be underlying prices that shape ECB policy over coming months. Today's update puts the Italian ECDI (minus 2) and ECDI-P (9) close enough to zero to signal that economic activity in general is broadly matching market expectations.

No revisions are expected to the provisional data leaving a 0.2 percent monthly increase in prices and an 11.6 percent annual inflation rate.

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.