Consumer prices were much stronger than expected in February. A 1.1 percent monthly spurt was more than double the market consensus and large enough to lift the headline annual inflation rate from January's 10.1 percent to 10.4 percent. The latter rate was only a 2-month high but also constituted the first increase since last October and was fully 8.4 percentage points above the BoE's medium-term target.

The main contributions to the jump in the annual rate came from food and non-alcoholic drink, where inflation climbed from 16.8 percent to 18.2 percent, restaurants and hotels (12.1 percent after 10.8 percent), alcohol and, clothing and footwear (8.0 percent after 6.2 percent) and other goods and services (6.7 percent after 5.9 percent). Partial offsets were provided by furniture and household goods (8.6 percent after 9.1 percent) and recreation and culture (4.1 percent after 5.0 percent).

As a result, the core CPI was up a steep 1.2 percent on the month, more than unwinding January's 0.9 percent drop and raising the underlying annual inflation rate from 5.8 percent to 6.2 percent.

Today's report will not go down well at the BoE. Given the surprising weakness of the January report, February's bounce-back may simply reflect timing issues with the data but, in any event, inflation is clearly too high. The MPC is now all the more likely to increase Bank Rate again tomorrow. The UK's ECDI currently stands at 11 and the ECDI-P at 5, both measures indicating that economic activity in general is running just slightly ahead of market expectations.

Consumer prices are expected to increase 0.5 percent on the month in February for a 9.9 percent year-over-year rate. Respective rates in January were minus 0.6 and 10.1 percent.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

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 UK, 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. Inflation is an increase in the overall price level 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.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. 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.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.