Italian inflation fell sharply in November, the latest eurozone country to record a dramatic easing of price pressures this month, according to flash data.

Consumer prices slipped by 0.4 percent, well below the consensus estimate of a 0.1 percent rise, after a 0.2 percent decline in October. That takes the annual rate of inflation down to 0.8 far short of the expected 1.3 percent gain after a 1.7 percent rise in October.

The underlying inflation rate declined to an annual rate of 3.6 percent from 4.2 percent in October. Despite the sizeable fall, that still leaves core inflation well above the European Central Bank's 2.0 percent target.

The harmonised inflation rate, which feeds into the Eurozone composite, declined by 0.4 percent in November, after a 0.1 percent rise in October, bringing the annual rate down to 0.7 percent from 1.8 percent previously.

Eurozone inflation also released on Thursday declined to an annual rate of 2.4 percent, but underlying price pressures remain elevated, falling to 3.6 percent from 4.2 percent in October.

However, ebbing inflation may also strengthen the market view that Eurozone rates could begin to decline next year, with some analysts looking for as many as four rate cuts in 2024.

That's despite continued hawkish comments from European rate setters. Earlier this week, Bundesbank President Joachim Nagel insisted that it's too early to begin envisioning a lower rate environment. The Bank's governing council left the door open to further rate hikes at their October rate-setting meeting, according to minutes released last week.

The data take the Italian RPI to minus 38 and the RPI-P to minus 3, meaning that overall economic activity is underperforming market expectations but only due to surprisingly weak prices.

Prices are expected to edge up 0.1 percent on the month, trimming the annual inflation rate from 1.7 percent to 1.3 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 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 the Italy 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, Italy's interest rates are set by the European Central Bank.

Italy like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

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.