Prices behaved much as expected in March. With base effects strongly negative (the CPI rose a monthly 2.0 in March 2022), a marginally firmer than expected provisional 0.8 percent monthly increase was still small enough to slash the annual inflation rate from February's final 8.7 percent to 7.4 percent, its lowest mark since last August.

The flash HICP followed a similar profile with a 1.1 percent monthly increase that cut its yearly rate from 9.3 percent to 7.8 percent, now 5.8 percentage points above the ECB's target.

The monthly slump in the annual CPI rate was driven by energy where inflation dropped from 19.1 percent to just 3.5 percent. The same factor lay behind a 2.6 percentage point slide in the overall goods rate to 9.8 percent. However, elsewhere, food (22.3 percent after 21.8 percent) continued to climb and services (4.8 percent after 4.7 percent) also ticked higher. Consequently, core inflation (ex-food and energy), which stood at 5.7 percent in February, was probably little changed.

Today's German inflation update will reinforce expectations for a sharp decline in headline Eurozone inflation in tomorrow's March report (the Spanish HICP rate also slumped from 6.0 percent to 3.1 percent). However, more importantly, it should also warn that core rates are still very sticky. The German ECDI now stands at 36 and the ECDI-P at a very solid 51. Both measures signal a significant degree of outperformance by economic activity in general.

March's consensus is a year-over-year rate of 7.3 percent versus 8.7 percent in February.

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.