In line with September, inflation was softer than expected in October. With base effects again negative, a provisional zero monthly change in prices was a couple of ticks less than the market consensus and small enough to reduce the annual inflation rate from September's final 4.5 percent to 3.8 percent, matching its lowest mark since July 2021.

The flash HICP was even weaker, posting a 0.2 percent drop on the month to put its yearly rate at 3.0 percent, down from 4.3 percent previously and now only 1 percentage point above the ECB's target.

The fall in the annual CPI rate was largely attributable to goods where inflation slumped from 5.0 percent to 3.6 percent. Within this, energy (minus 3.2 percent after 1.0 percent) and food (6.1 percent after 7.5 percent) both had a negative effect. Even so, with services (3.9 percent after 4.0 percent) also edging lower, the core rate dropped again, from 4.6 percent to 4.3 percent.

Today's surprisingly soft German update is consistent with another expected sizeable fall in the Eurozone's flash headline inflation rate due tomorrow. It will not be all one-way traffic as the Spanish HICP rate released earlier today showed a rise from 3.3 percent to 3.5 percent, but the German slide is significant. Crucially too, core inflation in both countries declined. Meantime, the German RPI now stands at minus 9, indicating a limited degree of overall economic underperformance but only due unexpectedly weak prices as the RPI-P now stands at 17. This is just the pattern that the ECB will be happy to see.

October's consensus is a year-over-year 4.0 percent rate versus 4.5 percent in September and 6.1 percent in August.

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.