CPI inflation provisionally unwound May's acceleration in June. A 0.1 percent monthly increase in prices was a tick less than the market consensus and small enough to reduce the headline rate from 2.4 percent to 2.2 percent, in line with April's final print and so matching its weakest mark since April 2021.

The flash HICP largely followed suit with a 0.2 percent monthly increase that lowered its yearly rate from 2.8 percent to 2.5 percent, now only 0.5 percentage points above the ECB's target.

The drop in the annual CPI rate masked stubbornly firm service sector prices, where inflation held steady at a worryingly high 3.9 percent, and a pick-up in food (1.1 percent after 0.6 percent). Rather, the fall was due to overall goods (0.8 percent after 1.0 percent) and energy (minus 2.1 percent after minus 1.1 percent). As a result, core inflation (ex-food and energy) dipped a tick to 2.9 percent).

The deceleration in German HICP inflation increases the likelihood of a fall in the overall Eurozone rate tomorrow. Even so, it is unlikely to convince many Governing Council members that July should see another cut in policy interest rates. That said, the softer underlying rate should slightly bolster the chances of another ease after the summer recess. Today's update leaves the German RPI (minus 34) and RPI-P (minus 40) deep in negative surprise territory meaning that economic activity in general is lagging well behind market expectations.

June's consensus is a year-over-year 2.3 percent versus 2.4 percent in May and 2.2 percent in April. The consensus for the HICP is 2.6 percent versus 2.8 percent in May and 2.4 percent in April.

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.