Eurozone inflation decelerated again in July. A final 5.3 percent annual rate was unrevised from the flash estimate and so still down 0.2 percentage points versus June's final 5.5 percent. This left the lowest post since January 2022, albeit a sizeable 3.3 percentage points above the ECB's target.

More importantly, the slide in the headline rate was only partially mirrored in the core rates. Hence, the narrowest measure was unrevised at 5.5 percent, also unchanged from its final June rate, while excluding just energy and unprocessed food, the rate dropped from 6.8 percent to an unrevised 6.6 percent, matching its lowest mark since October 2022. Elsewhere, inflation in non-energy industrial goods decreased from 5.5 percent to 5.0 percent but in services rose from 5.4 percent to 5.6 percent. Energy (minus 6.1 percent after minus 5.6 percent) and food, alcohol and tobacco (10.8 percent after 11.6 percent) both had a negative impact.

The ECB will no doubt be somewhat disappointed by the underlying rates and will certainly have hoped for some much-needed progress on cutting inflation in services. As it is, today's report confirms that even if trends are moving in the right direction, they are doing so uncomfortably slowly. As such, the data leave open the possibility of another hike in key interest rates in September. The flash August HICP data due at the end of the month will be key. More generally, the final July report puts the Eurozone ECDI at 4 and the ECDI-P at 11, implying that overall economic activity is performing just a little better than market expectations.

No revisions are expected to the flash data leaving a 5.3 percent headline inflation rate, down from June's final 5.5 percent, and a 5.5 percent narrow core, unchanged from June.

The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.

The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

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 your mortgage and auto loans to Treasury bills, notes and bonds. 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 HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.