Consumer prices provisionally rose 0.2 percent on the month in January, trimming the headline annual inflation rate from 11.6 percent to 10.1 percent. This was some 0.3 percentage points below the market consensus and its weakest print since last September.

The flash HICP fell a monthly 1.3 percent, lowering its yearly rate from 12.3 percent to 10.9 percent but still fully 8.9 percentage points above the ECB's target.

However, once again the fall in the annual CPI inflation rate was largely attributable to weaker regulated energy (minus 10.9 percent after 70.2 percent) and, to a much lesser extent, non-regulated energy (59.6 percent after 63.3 percent). Unprocessed food (8.0 percent after 9.5 percent) and recreational services (5.5 percent after 6.2 percent) also subtracted. As a result, core inflation moved in the opposite direction, climbing from 5.8 percent to 6.0 percent.

Consequently, the trend in underlying inflation remains in the wrong direction meaning that today's update will not go down well at the ECB. The January data put the Italian ECDI at minus 10 but leave the ECDI-P in positive surprise territory at 19. In other words, outside of negative inflation surprises, overall economic activity continues to modestly exceed market expectations, as it has done consistently for several months.

Consumer prices are expected to fall to 10.4 percent in January versus 11.6 percent in December.

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.