Headline inflation was unrevised in February. At 8.5 percent, the final annual rate matched its flash estimate and so remained just a tick short of January's final mark. The decline, which reflected a 0.8 percent monthly increase in prices, means that the yearly rate is now at its lowest level since last May but still some 6.5 percentage points above the ECB's 2 percent target.

More importantly though, the deceleration in the overall rate was not mirrored in the key core measures. Rather, the narrowest gauge accelerated from 5.3 percent to an unrevised 5.6 percent while the broader index which, excludes just energy and unprocessed food, rose from 7.1 percent to an unchanged 7.4 percent. Both readings were all-time highs. More generally, the rate for non-energy industrial goods edged up from 6.7 percent to 6.8 percent while its services counterpart climbed from 4.4 percent to 4.8 percent. With food, alcohol and tobacco (15.0 percent after 14.1 percent) also providing yet another boost, the headline dip was wholly attributable to weaker energy (13.7 percent after 18.9 percent).

Regionally, the picture was again mixed. Amongst the larger four member states, a fall in Italy (9.8 percent after 10.7 percent) contrasted with rises in France (7.3 percent after 7.0 percent), Germany (9.3 percent after 9.2 percent) and Spain (6.0 percent after 5.9 percent). Elsewhere, Latvia (20.1 percent) remained at the top of the inflation ladder ahead of Estonia (17.8 percent).

The ongoing acceleration in the core rates explains why the ECB persisted with its pre-announced 50 basis point hike yesterday despite all the turmoil in the global banking sector. Wobbles in financial markets could yet put a cap on official interest rates but the central bank's determination to get inflation back under control should not be underestimated. Today's data put the Eurozone's ECDI at minus 11 and the ECDI-P at minus 31. Both measures show that overall economic activity is falling somewhat short of market expectations.

No changes are expected in the final data leaving an 8.5 percent annual headline inflation rate, down from January's final 8.6 percent, and a 5.6 percent narrow core, up from 5.3 percent.

The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.

The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB'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 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.

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 HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.