The provisional CPI data showed the yearly inflation rate falling from 1.9 percent to a lower than expected 1.6 percent in September. Prices were unchanged on the month.

The annual increase of the harmonised index of consumer prices was marginally higher at 1.8 percent but this too was well below the previous month's 2.0 percent post. Prices dipped 0.1 percent on the month.

Core inflation, which excludes volatile food and energy prices, remains higher at a 2.7 percent annual rate but this is also down from August's 2.8 percent.

Falls in both the overall and core German inflation rates bode well for a decline in the flash Eurozone data due tomorrow. This would help to underpin speculation about another ECB interest rate cut as soon as this month. Today's update puts the German RPI and RPI-P to minus 13 and minus 16 respectively, indicating that overall economic activity is running somewhat behind market expectations.

September's consensus is a year-over-year rise of 1.7 percent versus 1.9 percent in August and 2.3 percent in July. The consensus for the HICP is 1.9 percent versus 2.0 percent in the prior month that followed 2.6 percent 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 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.