The final September consumer price index dropped by an unrevised 0.2 percent on a monthly basis leaving annual inflation also unchanged at 0.7 percent. The latter was down from August's 1.1 percent rate. The primary factor behind the deceleration was a significant drop in energy prices, both regulated (10.4 percent after 14.3 percent) and non-regulated (minus 11.0 percent after minus 8.6 percent). Inflation also eased in recreational, personal care and transport services.

Core inflation, excluding volatile items like energy and fresh food, also dipped slightly from 1.9 percent to 1.8 percent, again matching its provisional print, while the gap between goods and services remained stable.

The HICP, which, unlike the CPI, accounts for seasonal factors like summer sales, rose an unrevised 1.2 percent monthly but moderated to a downwardly revised 0.7 percent annual rate from 1.2 percent in August.

Today's update leaves the Italian RPI at minus 11 and the RPI-P at minus 19 indicating overall economic performance is falling a little behind market forecasts.

No revisions are expected to the provisional data leaving annual CPI inflation at just 0.7 percent, down from 1.1 percent in August.

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.