Annual CPI inflation slowed significantly and by more than expected in September. Prices rose 0.1 percent on the month, reducing the yearly rate from 2.2 percent to 1.7 percent, a couple of ticks short of the market consensus and its first sub-target outturn in three-and-a-half years.

The deceleration was largely driven by reductions in transport costs (minus 2.2 percent after 1.3 percent) particularly air fares and motor fuels, although rising prices in food and non-alcoholic beverages partially offset this decline.

Core inflation, which excludes volatile items like energy and food, also decreased, to 3.2 percent from 3.6 percent in August, its weakest print since September 2021. Importantly too, the rate in the key services sector dropped from 5.6 percent to 4.9 percent while goods inflation, already negative since April, slipped from minus 0.9 percent to minus 1.4 percent.

Higher energy costs will probably see headline inflation rise again in the October report. However, today's surprisingly soft data - ahead of what seems certain to be a tight Budget at the end of the month - must boost the likelihood of the BoE cutting Bank Rate to 4.75 percent in November.They also reduce the UK RPI to minus 14, showing that the economy is performing slightly below market expectations. However this just reflects the weakness of prices as the RPI-P now stands at 7.

The consumer price index is expected up 0.2 percent on the month and 1.9 percent on the year after rising 0.3 percent month over month in August and 2.2 percent year over year. The yearly core rate is expected to be flat at 3.5 percent.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

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 UK, 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. Inflation is an increase in the overall price level 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 CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.