Undermined by strongly negative base effects, Eurozone inflation continued to fall sharply in October. At 2.9 percent, the final annual rate matched its flash estimate and was well down from September's 4.3 percent. This marked its lowest reading since July 2021 and reduced the overshoot versus the medium-term target to less than 1 percentage point.

The core rates were similarly unrevised leaving the narrowest measure sliding 0.3 percentage points to a 4.2 percent annual rate, its lowest print since July 2022. Excluding just energy and unprocessed food the rate declined a sharper 0.5 percentage points to 5.0 percent. Elsewhere, inflation in non-energy industrial goods decreased from 4.1 percent to 3.5 percent while services dipped from 4.7 percent to 4.6 percent, the latter's third successive drop. Energy (minus 11.2 percent after minus 4.6 percent) and food, alcohol and tobacco (7.4 percent after 8.8 percent) also subtracted again.

Regionally, most member states posted falls but there were gains in Spain (3.5 percent after 3.3 percent), Estonia (5.0 percent after 3.9 percent) and Greece (3.8 percent after 2.4 percent). Of note, annual inflation is now negative in Belgium (minus 1.7 percent) and the Netherlands (minus 1.0 percent) and, alongside Italy, both are below the ECB's target.

Today's update adds nothing new to the region's inflation picture. Recent developments have been favourable and all but guarantee no change in key interest rates next month. Even so, with the rate in services still running north of 4 percent, the central bank will be alert to the risks of easing policy too early. The final October data put the Eurozone RPI at minus 9 and the RPI-P at minus 19, both measures showing overall economic activity slightly lagging market expectations.

No revisions are expected leaving a 0.1 percent monthly rise and a 2.9 percent annual inflation rate, the latter down from September's final 4.3 percent.

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.