Prices again undershot expectations in February. A provisional 0.1 percent monthly increase was well short of the market consensus and only strong enough to leave annual inflation unchanged at January's final 0.8 percent.

The flash HICP essentially followed suit with a 0.1 percent monthly rise that left its yearly rate steady at 0.9 percent, still 1.1 percentage points below the ECB's target.

February's stable annual CPI rate masked a deceleration in unprocessed food (4.5 percent after 7.5 percent) and processed food (3.8 percent after 4.5 percent). Non-energy industrial goods (1.3 percent after 1.7 percent) and transport services (3.8 percent after 4.2 percent) also posted falls. However, offsets were provided by non-regulated energy (minus 17.2 percent after minus 20.4 percent), regulated energy (minus 18.6 percent after minus 20.6 percent) and communication (0.7 percent after minus 0.2 percent). Even so, core inflation still continued to decline, easing from 2.7 percent to 2.4 percent.

The February data again show that inflation in Italy is nothing much for the ECB to worry about. At 2.6 percent, the narrow core HICP rate is still above the 2.0 percent target but not by much and it has fallen every month since last September. Indeed, today's report puts the Italian RPI at minus 38 and the RPI-P at minus 16, the gap between the two gauges showing that recent inflationary shocks have been on the downside.

Prices are seen rising 0.4 percent on the month, lifting the yearly inflation rate from January's final 0.8 percent to 1.0 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.