Inflation fell again in April. Prices rose a final 0.4 percent on the month, unrevised from the provisional estimate and, with base effects negative, small enough to reduce the annual rate from March's final 7.4 percent to 7.2 percent. The headline reading stands at its lowest level since last August.

The final HICP also matched its flash outturn and so still shows a 0.6 percent monthly increase that cut its yearly rate from 7.8 percent to 7.6 percent, some 5.6 percentage points above the ECB's target.

The monthly drop in the annual CPI rate was driven by food where inflation dropped sharply from 22.3 percent to 17.2 percent. The same factor lay behind a 0.5 percentage point slide in the overall goods rate to 9.3 percent despite an increase in energy (6.8 percent after 3.5 percent). Elsewhere, services (4.7 percent after 4.8 percent) were marginally softer. Consequently, core inflation (ex-food and energy) was unchanged at 5.8 percent in March.

Today's update leaves the German ECDI and ECDI-P in negative surprise territory at minus 19 and minus 11 respectively. However, with core inflation so firm and sticky, the Bundesbank will no doubt be pushing for still higher ECB interest rates next month.

No revisions are expected to the provisional data leaving a 0.4 percent monthly increase and a 7.2 percent annual inflation rate, the latter up from March's final 7.4 percent.

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.