In August, the consumer price index rose modestly by 0.2 percent month-over-month and 1.1 percent year-over-year, a decrease from 0.4 percent over the month and 1.3 percent over the year in July. This slowdown is attributed to a significant drop in non-regulated energy prices from minus 6.0 percent to minus 8.6 percent and durable goods from minus 1.2 percent to minus 1.8 percent, along with a moderation in housing-related services from 2.7 percent to 2.5 percent. However, the index will be buoyed by a surge in regulated energy prices from 11.7 percent to 14.0 percent and higher transportation services from 2.2 percent to 2.9 percent, as well as processed food products from 1.6 percent to 1.8 percent.

Core inflation, excluding energy and fresh food, climbed to 2.0 percent from 1.9 percent in July, reflecting persistent price pressures in services, especially in aviation. Conversely, the inflation differential between services and goods is expanded by 3.7 percentage points. Food and personal care product prices also accelerated year-over-year.

The harmonized index for consumer prices declined by 0.1 percent month-over-month, reflecting seasonal sales, but increased annually by 1.3 percent, down from 1.6 percent in July. This mixed picture indicates ongoing inflationary pressures despite easing in certain sectors.

Consumer prices are forecast to rise 0.3 percent on the month after a 0.4 percent gain in July.

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

Italy like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The core CPI, which excludes fresh food, is usually the preferred indicator of short-term inflation pressures.

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.