The flash October annual CPI inflation rate was 2.0 percent, slightly above forecasts and up from September's final 1.6 percent. Month-over-month, consumer prices rose 0.4 percent.

The harmonised index of consumer prices, which aligns with European inflation metrics, registered a 2.4 percent yearly rise, up from 1.8 percent, and also posted a 0.4 percent monthly increase. Excluding volatile categories such as food and energy, core CPI inflation stands higher at 2.9 percent, up from 2.7 percent and showing that underlying price pressures are more pronounced outside these essential areas.

The increase in core inflation makes for a flat underlying trend since July and may help to temper market speculation about the pace of future ECB easing. It also boosted the likelihood of a pick-up in the Eurozone rate due for release tomorrow. Today's update takes the RPI to 39 and the RPI-P to 45, both readings showing economic activity in general running well ahead of market forecasts.

After no change in September from August, CPI is expected up 0.3 percent in October. The yearly headline figure is expected up 1.8 percent after September's 1.6 percent. HICP is seen up 0.1 percent on the month and 2.1 percent from a year ago.

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.