After easing in May, consumer prices reaccelerated in June. A provisional 0.3 percent monthly rise compared with May's 0.1 percent decline, while the annual rate of 6.4 percent, though only 1 tenth above expectations for 6.3 percent, was still 3 tenths above May's 6.1 percent.

The flash HICP followed showed even greater pressure, rising 0.4 percent on the month with this annual rate rising from May's 6.3 percent to 6.8 percent. This rate is now 4.8 percentage points above the ECB's target.

Turning back to non-harmonised data, services were behind June's rise, accelerating to 5.3 percent on the year from 4.5 percent in May. Goods inflcation actually eased to 7.3 from 7.7 percent reflecting slowing in food to 13.7 from 14.9 percent. Energy rose 3.0 percent versus May's 2.6 percent. Core inflation, excluding food and energy, rose to 5.8 from 5.4 percent.

German economic data have been disappointing expectations substantially, at minus 34 on Econoday's Consensus Divergence Index and at minus 60 when excluding inflation data including today's hotter-than-expected report.

June's consensus is a year-over-year 6.3 percent rate versus 6.1 percent in May which was down from April's 7.2 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.