Strongly negative base effects ensured that headline inflation fell very sharply in March. The flash annual rate was unrevised at 6.9 percent in the final data, down from February's final 8.5 percent and its lowest mark since February 2022. The latest outturn was also 4.9 percentage points above the ECB's target.

However, once again the deceleration in the overall rate was not mirrored in the key core measures. Hence, the narrowest gauge accelerated from 5.6 percent to an unrevised 5.7 percent while excluding just energy and unprocessed food, the rate edged up from 7.4 percent to 7.5 percent, also matching its flash reading. Both rates confirmed new all-time peaks. Elsewhere, inflation in non-energy industrial goods eased from 6.8 percent to 6.6 percent but, more ominously, climbed from 4.8 percent to an upwardly revised 5.1 percent in services. Food, alcohol and tobacco also extended their upward trend, rising from 15.0 percent to 15.5 percent.

Regionally, all member states bar Malta (7.1 percent after 7.0 percent) saw a significant decline in their respective headline rates. France dropped from 7.3 percent to 6.7 percent, Germany from 9.3 percent to 7.8 percent, Italy from 9.8 percent to 8.1 percent and Spain from 6.0 percent to just 3.1 percent. Latvia (17.2 percent after 20.1 percent) remained at the top of the inflation ladder ahead of Estonia (15.6 percent after 17.8 percent).

The ECB will look through today's headline slide and concentrate instead on the much more troublesome underlying rates. Here, developments remain uncomfortably strong and the trend still inconsistent with the central bank achieving its price stability goals within an acceptable time frame. As such, today's report should boost the chances of yet another hike in official interest rates in May. The March update puts the Eurozone's ECDI at 14 and the ECDI-P at 25, both values indicating that overall economic activity is running a little hotter than markets expected.

No revision is expected to the provisional data leaving a 6.9 percent headline annual inflation rate, down from February's final 8.5 percent, and the narrow core rate at 5.7 percent, up from 5.6 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.