French inflation eased sharply in October, in line with earlier estimates, although stubborn service sector price pressures could cause a bit of discomfort at European Central Bank headquarters.

Consumer prices rose by 0.1 percent last month, according to a revised reading released on Wednesday, matching the flash estimate released two weeks ago. That pushes inflation down to an annual rate of 4.0 percent from 4.9 percent in September, also in line with the earlier reading.

Softer energy prices played a key role in reducing the headline inflation rate; energy prices rose by an annual rate of 5.2 percent, down from an 11.9 percent pace in September. But core inflation also fell markedly, to an annual rate of 4.2 percent from 4.6 percent a month earlier.

However, service sector inflation accelerated, to an annual rate of 3.2 percent from 2.9 percent in September, with transport costs providing some of the upward momentum.

Harmonised inflation rose by 0.2 percent in October after a 0.6 percent decline previously, but the annual rate declined to 4.5 percent from 5.7 percent in September. Both the monthly and annual outcomes were unchanged from the flash estimate.

The sharp reduction in inflation supports the market view that European interest rates have reached their peak, despite stubborn price pressures in the service sector. Various European Central Bank officials have repeated the company line that policy has become sufficiently restrictive if maintained to return inflation to the bloc's two percent target. Updated October eurozone inflation data are due on Friday.

The latest data take the French RPI to minus 16 and the RPI-P to minus 13, meaning the economy is underperforming expectations.

No revisions are expected leaving a 0.1 percent monthly rise and a 4.0 percent annual inflation rate, the latter down from September's final 4.9 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 represent the main rates of inflation. The national CPI is released alongside the HICP, Eurostat's harmonized measure of consumer prices. A flash estimate was released for the first time in January 2016 and is now published towards the end of each reference month.

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 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, France's interest rates are set by the European Central Bank.

France 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.

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.