The Eurozone HICP measure of inflation showed stronger price measures in May, confirming the results of flash estimates. The headline measure rose 0.2 percent on the month after a previous increase of 0.6 percent in April, with the year-over-year increase picking up from 2.4 percent to 2.6 percent, in line with the flash estimate and the consensus forecast. The narrow core measure rose 0.4 percent after a previous increase of 0.7 percent, with the year-over-year increase strengthening from 2.7 percent in April to 2.9 percent in May.

Energy and services prices were the main factors pushing headline HICP inflation higher in May. Energy prices rose 0.3 percent on the year after a previous decline of 0.6 percent, while the year-over-year increase in services prices picked up from 3.7 percent to 4.1 percent. This was offset by more moderate increases in food prices and non-energy industrial good prices.

On a regional basis, the increase in Eurozone HICP inflation in May was broad-based across major economies. German inflation increased from 2.4 percent in April to 2.8 percent in May while French inflation picked up from 2.4 percent to 2.6 percent. Spanish inflation also picked up further from 3.4 percent to 3.8 percent, partly offset by a small fall in Italian inflation from 0.9 percent to 0.8 percent.

Today's data left the Eurozone RPI-P measure unchanged at minus 33 but resulted in a fall in the RPI measure from minus 19 to minus 31, indicating that data are now coming in somewhat further below consensus expectations.

The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.

The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB'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 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.

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 HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.