Econoday's consensus medians for April all hit the bullseye: consumer prices rose 0.3 percent on the month and 3.4 percent on the year and rose 0.3 and 3.6 percent when excluding food and energy. For Federal Reserve policy the results point unfortunately to no more than incremental cooling at still high levels and won't be pulling forward the long-awaited rate cut.

Headline prices have been lower, at 3.1 percent as recently as January, and though the core is now at a two-year low it is still 1.6 percent points above the Fed's target.

Services are the Fed's main concern, rising 0.4 percent for annual inflation of 5.3 percent. Until services begin to tangibly cool, the Fed won't be comfortable cutting rates. Goods, by contrast, remain very favorable, down 0.1 percent less food and energy commodities for 1.3 percent annual contraction.

Energy has been driving inflation higher in recent months, rising 1.1 percent in both April and March though the annual rate is up only 2.6 percent. More central for monetary policy is shelter which remains a fixed source of pressure, rising 0.4 percent for a third straight month and up 5.5 percent on the year. Shelter and energy together contributed over 70 percent of the overall monthly increase.

Food has been flat showing virtually no change over the past three months and up only 2.2 percent on the year. Price weakness for vehicles remains pronounced, falling 0.4 percent for new vehicles for a third straight monthly decline and down 0.4 percent on the year. Used cars and trucks fell 1.4 percent for 6.9 percent annual contraction.

Progress on the price front is being made but the pace, because of services and also shelter, is agonizingly slow. US economic data, on net, have been missing forecasts the past couple of weeks, at minus 13 on Econoday's Relative Performance Index and at minus 25 when excluding prices such as today's CPI report, the latter underscoring underperformance for the real economy.

Consumer prices have come in on the high end of Econoday's consensus ranges the past four reports. Overall prices as well as the core both rose an overheated 0.4 percent in March with April consensus estimates at 0.3 percent for both. Annual rates, at 3.5 and 3.8 percent respectively, didn't show any improvement in March with limited improvement expected for April, at 3.4 and 3.6 percent.

The CPI is a measure of the change in the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation for the consumer. Annual inflation is also closely watched.

The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group. The CPI-U is the more widely quoted of the two, although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W, because it has a longer history. Monthly variations between the two are slight.

The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas. The regional and city CPIs are often used in local contracts.

The Bureau of Labor Statistics also produces a chain-weighted index called the Chained CPI. This measures a variable basket of goods and services whereas the regular CPI-U and CPI-W measure a fixed basket of goods and services. The Chained CPI is similar to the personal consumption expenditure price index that is closely monitored by the Federal Reserve Board.

The consumer price index is the most widely followed monthly indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.

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.

If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 will not be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose 4.2 percent in the U.S. over 2007. To recoup your purchasing power, you would have to charge 4.2 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.

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.