Inflation provisionally accelerated in May for the first time since last December. With base effects positive, a 0.1 percent monthly increase in consumer prices was large enough lift the annual rate from April's final 2.2 percent to 2.4 percent, matching the market consensus and a 3-month high.

The flash HICP essentially followed suit with a 0.2 percent monthly increase that boosted its yearly rate from 2.4 percent to 2.8 percent, now 0.8 percentage points above the ECB's target.

The rise in the annual CPI rate was mainly due to services where inflation climbed from 3.4 percent to an ominously high 3.9 percent. By contrast, the rate in overall goods eased from 1.2 percent to 1.0 percent but both food (0.6 percent after 0.5 percent) and energy (minus 1.1 percent after minus 1.2 percent) were also marginally higher. Consequently, core inflation held steady at 3.0 percent.

The pick-up in German HICP inflation increases the likelihood of a rise in the overall Eurozone rate on Friday but will not prevent the ECB cutting key interest rates next week. That said, the stability of the core and acceleration in services provide reason for supposing that the bank will not be a hurry to ease again as soon as July. Today's update trims the German RPI to minus 2 but leaves the RPI-P at 8. Economic activity in general is performing much as expected.

May's consensus is a year-over-year 2.4 percent versus 2.2 percent in both April and March. The consensus for the HICP is 2.8 percent versus 2.4 percent in both April and March.

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 Germany 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, Germany's interest rates are set by the European Central Bank.

Germany like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). The HICP is calculated to give a comparable inflation measure for the EMU. Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Wuerttemberg, Saxony, Hesse, Bavaria and Brandenburg. The preliminary estimate of the CPI follows in the same day after the last of the state releases. The data are revised about two weeks after preliminary release.

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.