October consumer prices were provisionally unchanged on a monthly basis. Annual inflation was 0.9 percent, up from September's 0.7 percent. The increase here was primarily due to higher rates in processed food including alcohol (from 1.5 percent to 2.0 percent), unprocessed food (from 0.3 percent to 3.3 percent), non-regulated energy products (from minus 11.0 percent to minus 10.2 percent) and in transport services (from 2.4 percent to 2.8 percent). Inflation also eased in recreational and personal care services.

Core inflation, excluding volatile items like energy and fresh food, was 1.8 percent, the same as in the previous month. Excluding just energy, the rate was 1.9 percent, up from 1.7 percent in September. The gap between goods and services shrank slightly in October.

The HICP, which, unlike the CPI, accounts for seasonal factors like summer sales, rose 0.3 percent monthly, down from 1.2 in September. The annual rate, however, rose to 1.0 percent, up from September's 0.7 percent.

Today's update leaves the Italian RPI at minus 18 and the RPI-P at minus 31 indicating overall economic performance is falling behind market forecasts.

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.