Inflation provisionally accelerated in October. A 0.3 percent monthly increase in prices was enough to lift the yearly rate from September's final 1.7 percent to 2.0 percent, a tick above the market consensus but only a 2-month high. Having fallen below it last month for the first time in more than three years, inflation now matches its 2.0 percent medium-term target.

The key core rates were better behaved, both the narrowest gauge and the measure excluding just energy and unprocessed food holding steady at 2.7 percent. Inflation in services was similarly steady at 3.9 percent while its non-energy industrial goods counterpart edged 0.1 percentage point higher to a still very soft 0.5 percent. Consequently, most of the boost to the overall rate came from energy (minus 4.6 percent after minus 6.1 percent) and food, alcohol and tobacco (2.9 percent after 2.4 percent).

Regionally, headline inflation rose only slightly in France (1.5 percent after 1.4 percent) and Spain (1.8 percent after 1.7 percent) but climbed much more sharply in both Italy (1.0 percent after 0.7 percent) and, in particular, Germany (2.4 percent after 1.8 percent) which moved back above the target rate.

The acceleration in Eurozone inflation this month will not come as a surprise to the ECB which had already warned of some upside potential through year-end. Consequently, it should not prevent another the cut in key interest rates in December. Even so, the October update may be firm enough to dampen some of the speculation about a full 50 basis point ease. Today's reports lift the Eurozone RPI to 22 and the RPI-P to 12, both gauges showing overall economic activity running slightly ahead of market expectations.

Forecasters expect HICP to show a 1.9 percent rise on year with narrow core HICP up 2.6 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.