Prices were again significantly weaker than expected in November. A surprise 0.2 percent drop reduced the annual inflation rate from 4.6 percent to 3.9 percent, some 0.5 percentage points short of the market consensus. Inflation now stands at its lowest level since September 2021 and the overshoot versus its medium-term target has been trimmed to 1.9 percentage points from fully 9.1 percentage points just a year ago.

There was also good news on the core rate for which a 0.3 percent monthly drop in prices was steep enough to slash its yearly gain from 5.7 percent to 5.1 percent, its weakest print since January 2022. Overall goods inflation dropped from 2.9 percent to 2.0 percent while the rate in services eased from 6.6 percent to 6.3 percent.

The main downward contribution to the change in the annual headline rate came from transport, where prices fell 1.7 percent on the month versus a 0.2 percent rise in the same period in 2022, and recreation and culture (minus 0.4 percent after 0.6 percent). Food and soft drink (0.3 percent after 1.1 percent) similarly subtracted. There were no positive contributions of any real note.

The surprisingly soft November report leaves headline and core inflation on a solid downward trend which will inevitably please the BoE. Nonetheless, with service sector inflation still above 6 percent, the bank will be cautious. That said, today's update puts both the UK's RPI and RPI-P at a lowly minus 35. With overall economic activity also falling well short of forecasts, financial markets may soon start to bring forward their expected first rate cut in 2024.

At 4.6 percent versus expectations for 4.8 percent, consumer prices in October cooled significantly from 6.7 percent in September. November's expectations are further improvement to 4.4 percent. The monthly rate is seen rising 0.2 percent.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

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 UK, 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. Inflation is an increase in the overall price level 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 CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.