Inflation was much stronger than expected in April. A provisional 0.5 percent monthly increase in prices was large enough to lift the annual inflation rate from March's final 7.6 percent to 8.3 percent which was well above the market consensus.

The flash HICP was even stronger, posting a 1.0 percent monthly increase that boosted its yearly rate from 8.1 percent to 8.8 percent, now some 6.8 percentage points above the ECB's target.

However, the acceleration in the annual CPI rate was largely attributable to non-regulated energy, where inflation climbed from 18.9 percent to 26.7 percent. There were also (much more modest) increases in recreation (6.7 percent after 6.3 percent) and miscellaneous services (2.9 percent after 2.5 percent). By contrast, there were falls in regulated energy (minus 26.4 percent after minus 20.3 percent), processed food (14.7 percent after 15.3 percent), unprocessed food (8.4 percent after 9.1 percent) and housing services (3.2 percent after 3.5 percent). Consequently, core inflation was stable at 6.3 percent.

Accordingly, underlying inflation pressures remain strong and provide further reason for expecting another ECB tightening this week. More generally, today's update puts the Italian ECDI at minus 7 and the ECDI-P at 0, indicating that overall economic activity is broadly evolving in line with market expectations.

Consumer prices are expected to be flat on the month, lifting the annual inflation rate by a tick to 7.7 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 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.