Prices remained unchanged in June but the annual inflation rate still fell sharply. Strongly negative base effects assured that the lack of monthly change reduced the annual inflation rate from May's final 7.6 percent to 6.4 percent.

The flash HICP registered a 0.1 percent monthly gain, trimming its yearly rate from May's final 8.0 percent to 6.7 percent, now 4.7 percentage points above the ECB's target.

However, May's deceleration in the annual CPI rate was largely attributable to non-regulated energy where inflation fell from 20.3 percent to 8.4 percent. Other negative effects came from processed food (11.9 percent after 13.2 percent), transport services (3.8 percent after 5.6 percent), non-energy industrial goods (4.8 percent after 5.0 percent), and services related to recreation (6.5 percent after 6.7 percent). The main upward pressure came from unprocessed food (9.6 percent after 8.8 percent). Consequently, core inflation fell from 6.0 percent to 5.6 percent.

Underlying inflation remains sticky and, for the ECB, this may negate much of the good news contained in the fall in the headline rate.

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.