Inflation fell again in March but prices were still a little firmer than expected. A 0.6 percent monthly rise was small enough to reduce the headline rate from 3.4 percent to 3.2 percent, its weakest reading since September 2021 but 0.1 percentage point more than the market consensus. The gap with the 2 percent medium-term target duly narrowed to 1.2 percentage points.

There was also better news on core prices which similarly increased 0.6 percent versus February to reduce underlying yearly inflation from 4.5 percent to 4.2 percent, matching its lowest print since November 2021. Overall goods inflation declined from 1.1 percent to just 0.8 percent but its services counterpart dipped just a tick to 6.0 percent.

The main downward contribution to the change in the annual headline rate came from food and soft drink where inflation fell from 5.0 percent to 4.0 percent. Clothing and footwear (also 4.0 percent after 5.0 percent) as well as furniture and household goods (minus 0.9 percent after 0.0 percent) similarly weighed. Upside pressure came mainly from household services (minus 1.6 percent after minus 1.7 percent) and communication (7.5 percent after 5.6 percent).

Largely due to one-off effects, inflation is expected by the BoE to dip below 2 percent this quarter before rising again over the second half of the year. As such, the latest deceleration is unlikely to come as any real surprise and should not be expected to bring forward any cut in Bank Rate. Indeed, inflation in services remains a real problem. Moreover, today's CPI and PPI updates lift the UK's RPI to 19 and the RPI-P to 18, both measures showing overall economic activity running slightly ahead of market forecasts.

At 3.4 percent in versus expectations for 3.6 percent and against 4.0 percent in January, consumer prices in February were on the weak side of expectations. March's consensus is 3.1 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.