Consumer prices were surprisingly soft in July. A provisional flat monthly reading trimmed the annual inflation rate from June's final 4.5 percent to 4.3 percent, a tick short of the market consensus and its lowest reading since February 2022.

The flash HICP largely followed suit, also posting a flat monthly change that reduced its yearly rate from 5.3 percent to 5.0 percent, now 2.0 percentage points above the ECB's target.

However, the deceleration in the annual CPI rate was mainly due to food, where the inflation declined from 13.7 percent to 12.6 percent, and energy, which fell from minus 3.0 percent to minus 3.8 percent. Overall manufactured products (3.4 percent after 4.2 percent) were sharply weaker but the ECB will note an uptick in the service sector rate to 3.1 percent. Consequently, July's core rate (5.7 percent in June) was probably broadly stable.

The slowdown in French inflation bodes well for a drop in the Eurozone rate (flash data due next week) but core rates and service sector prices will be key to what happens to central bank interest rates over coming months. The latest updates put the French ECDI at minus 1 and the ECDI-P at 15. Real economic activity continues to run a little hotter than generally expected.

Prices are seen up 0.2 percent on the month, trimming the annual inflation rate by a tick to 4.4 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 represent the main rates of inflation. The national CPI is released alongside the HICP, Eurostat's harmonized measure of consumer prices. A flash estimate was released for the first time in January 2016 and is now published towards the end of each reference month.

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 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, France's interest rates are set by the European Central Bank.

France 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.

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.