Eurozone inflation was unchanged in mid-quarter. At 5.3 percent, the flash annual rate matched July's final post making August the first month since last October that it has not declined. The latest outturn was a couple of ticks firmer than the market consensus and, while equalling the lowest post since January 2022, remained a sizeable 3.3 percentage points above the ECB's target.

However, there was better news in the core rates. Hence, the narrowest measure fell 0.2 percentage points to 5.3 percent, in line with forecasts and matching an 8-month low, while the rate excluding just energy and unprocessed food declined fully 0.4 percentage points to 6.2 percent. Elsewhere, inflation in non-energy industrial goods decreased from 5.0 percent to 4.8 percent but in services dipped just a tick to 5.5 percent. That said, this was the first decline in the latter since May. Energy (minus 3.3 percent after minus 6.1 percent) provided a boost but food, alcohol and tobacco (9.8 percent after 10.8 percent) again had a negative impact.

Today's update leaves the door open to further ECB tightening next month but it's far from a done deal. Underlying inflation is moving in the right direction but from a high enough level and at a pace that leaves attainment of the 2 percent target still a distant prospect. The weakness of the recent real economy data may mean that the Governing Council doves will want a pause but on balance another 25 basis point hike in key rates in September looks slightly more likely than not.

More generally, the August data put the Eurozone ECDI at minus 31 and the ECDI-P at minus 49, both measures showing overall economic activity still lagging market expectations by some distance.

Consensus for August's HICP flash is 5.1 percent and 5.3 percent for the narrow core. These would compare respectively with July's 5.3 and 5.5 percent, the former down from June's 5.5 percent and the latter unchanged.

The flash harmonised index of consumer prices (HICP) provides an early estimate of the final HICP, but using just partial data. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Final data are released a round two weeks later. 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. Two of these are made available in the flash report amongst which financial markets normally concentrate upon the narrowest which excludes energy, food, alcohol and tobacco.

The measure of choice in the Eurozone is the harmonized index of consumer prices (HICP) 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 Eurozone, 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.