Prices behaved much as expected in February. A provisional 0.8 percent monthly increase was just a tick firmer than the market consensus and left the annual inflation rate unchanged at January's final 8.7 percent, just short of a multi-decade high.

However, HICP inflation accelerated with a 1.0 percent monthly gain that boosted the yearly rate from 9.2 percent to 9.3 percent. This was still well below October's 11.6 percent all-time peak but also some 7.3 percentage points above the ECB's target.

Within the CPI basket, inflation in overall goods eased from 12.7 percent to 12.4 percent, but in large part reflected a fall in energy (19.1 percent after 23.1 percent). Food (21.8 percent after 20.2 percent) resumed its longstanding upward trend and services (4.7 percent after 4.5 percent) also climbed again. Consequently, core inflation (ex-food and energy), which stood at 5.6 percent in January, was probably a little higher.

Taken together with the data already released from France (7.2 percent after 7.0 percent) and Spain (6.1 percent after 5.9 percent), today's German inflation update points to upside risk to tomorrow's Eurozone HICP report. If realised, it would boost speculation that it will not only be this month's meeting that sees another 50 basis point hike in ECB interest rates. The German ECDI now stands at minus 10 and the ECDI-P at minus 20, both measures still signalling a limited degree of economic underperformance.

February's consensus is a year-over-year rate of 8.7 percent which would match January's 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 Germany 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, Germany's interest rates are set by the European Central Bank.

Germany like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). The HICP is calculated to give a comparable inflation measure for the EMU. Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Wuerttemberg, Saxony, Hesse, Bavaria and Brandenburg. The preliminary estimate of the CPI follows in the same day after the last of the state releases. The data are revised about two weeks after preliminary release.

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.