Consumer prices moved in line with expectations in July. A provisional 0.3 percent monthly rise matched the market consensus and reduced the annual inflation rate from June's final 6.4 percent to 6.2 percent. However, the drop failed to fully reverse the 0.3 percentage point jump seen at quarter-end.

The flash HICP was up a larger 0.5 percent versus June but this was still small enough to trim its 12-month rate from 6.8 percent to 6.5 percent, now 4.5 percentage points above the ECB's target.

The monthly fall in the annual CPI rate was partly due to food where inflation decreased from 13.7 percent to 11.0 percent. However, energy (5.7 percent after 3.0 percent) climbed to a 3-month high helped by the base effects associated with the abolition of the renewables surcharge in July 2022. Even so, with services (5.2 percent after 5.3 percent) edging lower, the core rate eased 0.3 percentage points to 5.5 percent.

Taken together with the data already released from France (5.0 percent after 5.3 percent) and Spain (2.1 percent after 1.6 percent), today's German HICP update points to another fall in the flash headline Eurozone inflation rate next Monday. The core rate, which will be the key focus for the ECB, may also be a little weaker

Meantime, the German ECDI now stands at minus 19 and the ECDI-P at minus 31. Both measures show that economic activity in general continues to lag market expectations.

July's consensus is a 6.2 percent year-over-year rate versus 6.4 percent in June.

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.