Headline consumer prices rose 0.11 percent on the month in June following a 0.07 percent drop in May. Annual inflation was 1.75 percent, down from 2.02 percent and its lowest reading since March 2021. However, the core rate, which excludes fruits, vegetables, and energy, edged up from 2.57 percent to 2.61 percent.

Looking ahead, the June S&P PMI survey found businesses generally pessimistic about the year-ahead outlook and weak demand is already putting downside pressure on costs. Annual PPI inflation declined to minus 4.84 percent last month. Consequently, over coming months CPI inflation could fall further from this year's 3.04 percent peak posted in January.

The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Annual changes in the CPI represent the rate of inflation.

An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. 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.

Inflation (along with various risks) basically explains how interest rates are set on everything from mortgages and auto loans to government securities. 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.