Consumer prices were again significantly weaker than expected in March. With base effects remaining strongly negative, a provisional 0.3 percent monthly decline saw the annual inflation rate slump from February's final 9.1 percent to 7.7 percent, some 0.5 percentage point below the market consensus and its weakest print since May 2022.

The flash HICP recorded a 0.8 percent monthly gain but this still slashed its yearly rate from 9.8 percent to 8.2 percent, now 6.2 percentage points above the ECB's target.

As usual, the change in the annual CPI inflation rate was largely attributable to sharp swings in energy prices. Non-regulated energy (18.9 percent after 40.8 percent) had a large negative impact and regulated energy (minus 20.4 percent after minus 16.4 percent) also subtracted alongside processed food (15.3 percent after 15.5 percent). By contrast, prices accelerated in unprocessed food (9.3 percent after 8.7 percent) and recreation (6.3 percent after 6.1 percent). Consequently, core inflation edged up from 6.3 percent to 6.4 percent.

Accordingly, despite the sharp slide in the headline rate, the trend in underlying inflation remains firmly up and a real worry for the ECB. The March data put the Italian ECDI at minus 11, indicating a modest degree of overall economic underperformance. However, at 15, the ECDI-P shows that the real economy is proving somewhat more robust than expected, implying that recent downside shocks have been concentrated in the inflation data.

Annual inflation is expected to fall to 8.2 percent in March versus 9.1 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 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.