Consumer prices fell 0.2 percent on the month, reducing annual inflation from 1.1 percent to just 0.7 percent.

At the same time, the HICP, which accounts for seasonal factors like summer sales, rose a monthly 1.2 percent but still moderated the yearly change from 1.2 percent to 0.8 percent, even further below the ECB's 2 percent target.

The main downward pressure on the annual CPI rate came from a significant deceleration in energy prices, both regulated (from 14.3 percent to 10.0 percent) and non-regulated (from minus 8.6 percent to minus 11.0 percent). Additionally, reduced price growth in recreational, cultural, and personal care services contributed to the drop.

On the upside, there were steeper gains in both processed and unprocessed food, alongside an uptick in durable goods. Core inflation, excluding volatile items like energy and fresh food, dipped from 1.9 percent to 1.8 percent.

The September data simply underscore a still very subdued inflationary environment. Today's update leaves the Italian RPI at minus 11, indicating an overall economic performance a little short of expectations, and the RPI-P at 0 showing real economic activity matching market forecasts.

Consumer prices are forecast to fall 0.2 percent on the month, reducing headline inflation from 1.1 percent in August to 0.8 percent.

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.