In October, inflationary pressures intensified, with consumer prices increasing by 2.3 percent annually. This was up from 1.7 percent in September, a tick stronger than the market consensus and 0.3 percentage points above its medium-term target. Monthly, the CPI rose by 0.6 percent following no change in September. The consumer price index including owner occupiers' housing costs (CPIH) mirrored this trend, climbing to 3.2 percent year-over-year, driven largely by housing and household services, particularly surging electricity and gas prices.

Core inflation, which excludes volatile items like energy and food, highlighted a still firm underlying picture. Hence, the yearly core rate edged up to 3.3 percent from 3.2 percent and was also on the strong side of the market consensus. The core CPIH reached 4.1 percent annually. Despite these increases, recreation and culture costs provided some relief, acting as a partial offsetting factor.

Goods inflation rebounded, with the annual rate rising from minus 1.4 percent to minus 0.3 percent. The key services sector also saw a modest rise, increasing from 4.9 percent to 5.0 percent, albeit only a 2-month high.

These figures, particularly the pick-up in underlying inflation, increase the likelihood of the December BoE MPC holding Bank Rate at the current 4.75 percent. In the main, price still trends look to be moving in the right direction but, with Budget effects to come, October's data offer no room for complacency. The latest update takes the RPI to minus 13 and RPI-P to minus 18, showing that economic activity in general is still running behind market expectations.

CPI inflation fell more than expected to a 1.7 percent yearly rate in September from 2.2 percent in August. Forecasters expect a rebound to 2.2 percent in October with a 0.5 percent jump on the month. A big rise in household energy bills is expected to push headline inflation higher in October. Core inflation is expected to be better behaved and unchanged on the year at 3.2 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.