Following its bounce in May, inflation provisionally decelerated again in June. Another 0.2 percent monthly rise in the flash HICP put the annual rate at 2.5 percent, a tick short of its previous post and in line with the market consensus. However, the end of quarter dip failed to reverse all of May's gain and leaves a broadly flat trend since February. Inflation is now 0.5 percentage points above its medium-term target.

Moreover, the core rates also showed signs of stickiness. The narrowest measure was only unchanged at 2.9 percent, a tick above expectations, while the measure excluding just energy and unprocessed food edged just 0.1 percentage point lower to 2.8 percent. Services were again an issue with the rate here holding steady at a solid 4.1 percent, some 0.4 percentage points above April's recent low. Elsewhere, non-energy industrial goods were similarly steady but at only 0.7 percent while energy (0.2 percent after 0.3 percent) and food, alcohol and tobacco (2.5 percent after 2.6 percent) both had a minor negative impact.

Regionally, headline inflation cooled in France (2.5 percent after 2.6 percent), Germany (2.5 percent after 2.8 percent), and Spain (3.5 percent after 3.8 percent) but edged firmer from an easily sub-target level in Italy (0.9 percent after 0.8 percent).

The flash June data are unlikely to prompt any real speculation about a second successive cut by the ECB this month. By and large, inflationary pressures still seem to be headed in the right direction but progress is clearly becoming increasingly hard. Governing Council members will need further reassurance that the medium-term trajectory remains on course before pulling the trigger on another ease. Today's updates put the Eurozone RPI at minus 11 and the RPI-P at minus 24, both readings pointing to a limited degree of underperformance economic activity in general.

Consensus for June's HICP flash is 2.5 percent and 2.8 percent for the narrow core. These would compare respectively with May's 2.6 and 2.9 percent.

The flash harmonised index of consumer prices (HICP) provides an early estimate of the final HICP, but using just partial data. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Final data are released a round two weeks later. 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. Two of these are made available in the flash report amongst which financial markets normally concentrate upon the narrowest which excludes energy, food, alcohol and tobacco.

The measure of choice in the Eurozone is the harmonized index of consumer prices (HICP) 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 Eurozone, 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.