Inflation fell sharply but by slightly less than expected in April. Prices increased a monthly 0.3 percent, a tick more than the market consensus, and with base effects from the energy sector strongly negative, reduced the annual inflation rate from 3.2 percent to 2.3 percent. This s its lowest mark since July 2021 and just 0.3 percentage points above its 2 percent medium-term target.

Weaker energy inflation did much of the work, falling from minus 18.2 percent to minus 27.1 percent following the sector regulator's 12 percent cut in the cap on unit prices. However, the core rate also eased as a 0.9 percent monthly advance in the index trimmed its yearly change from 4.2 percent to 3.9 percent. This is its lowest print since October 2021 but also above expectations. Declining rates were seen in food and alcohol (2.9 percent after 4.0 percent), clothing and footwear (3.7 percent after 4.0 percent), recreation and culture (4.4 percent after 5.3 percent). Even so, while overall goods inflation tumbled from 0.8 percent to a lowly minus 0.8 percent, its services counterpart dipped just a tick to a still very robust 5.9 percent.

Today's update should go down well enough at the BoE but it will come as little surprise. Importantly, the bank still expects headline inflation to re-accelerate over the second half of the year, moving up to close to 3 percent by December. In particular, there will still be concerns about inflation in services where the rate remains almost three times the target. For now, a June cut in Bank Rate looks possible but unlikely. That said, another soft CPI report on 19 June, the day before the next MPC announcement, combined with a more pronounced drop in wage growth (11 June) might just be enough to tip the majority of MPC members in favour of a 25 basis points. Following this morning's suite of data, the UK's RPI and RPI-P both stand at 19, showing overall economic activity running slightly ahead of market forecasts.

At 3.2 percent in March, the CPI was slightly higher than expected and reflected continued price pressure for services. April's consensus, however, is a ratcheting lower to 2.2 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.