Eurozone inflation accelerated at the end of 2023 for the first time since last April. However, at an unrevised 2.9 percent, the increase versus November's final 2.4 percent was essentially just attributable to the base effects caused by a 0.4 percent monthly fall in prices a year ago. Indeed, while now 0.9 percentage points above the ECB's target, the latest reading only matched the October outturn.

More importantly anyway, core inflation continued to fall. The narrowest measure was down a further 0.2 percentage points at an unrevised 3.4 percent, its lowest post since March 2022. Excluding just energy and unprocessed food, the rate declined an even sharper 0.3 percentage points to 3.9 percent. Elsewhere, inflation in non-energy industrial goods decreased from 2.9 percent to 2.5 percent while services were flat at 4.0 percent. Consequently, with food, alcohol and tobacco (6.1 percent after 6.9 percent) also weaker, the headline boost came from a sharp jump in energy (minus 6.7 percent after minus 11.5 percent).

Regionally, inflation was up in most member states and headline rates in all countries are now back above zero. That said, several, including Italy (0.5 percent) and the Netherlands (1.0 percent), remain below the 2 percent target.

Accordingly, despite the bounce in overall inflation, the December data should go down well at the ECB. Further progress on the core rates will be needed to facilitate a cut in key interest rates but today's update clearly keeps the door open to easing later in the year. The final December data put the Eurozone RPI at minus 4 and the RPI-P at 2. In other words, overall economic activity is performing much as expected.

No revisions are expected to the provisional data leaving a 2.9 percent headline inflation rate, up from November's final 2.4 percent, and a 3.4 percent narrow core, down from 3.6 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.