The final October consumer price index report confirmed a marked pick-up in in headline inflation. The yearly rate rose to 2.0 percent, well above September's final 1.6 percent albeit in line with its flash estimate. Food prices were pivotal, with a notable 2.3 percent increase year-over-year, driven by sharp rises in the cost of butter by 39.7 percent and olive oil by 28.1 percent. Energy prices, while still lower than a year ago (minus 5.5 percent), showed signs of slowing decline, suggesting a complex interplay between energy and overall inflation.

Core inflation, excluding food and energy, stood at 2.9 percent, up from September's 2.7 percent and underscoring persistent inflationary pressures in services. Service prices rose 4.0 percent year-over-year, highlighting steep increases in insurance services (15.2 percent) and catering services (6.8 percent). Goods prices showed a modest uptick (0.4 percent), with non-alcoholic beverages (6.8 percent) standing out.

Month-over-month, consumer prices rose an unrevised 0.4 percent, propelled by increased costs for energy (0.4 percent) and food (0.8 percent). Butter prices surged (9.9 percent), with a significant drop in sugar prices (minus 19.9 percent). This latest update takes the RPI to 11 and RPI-P to 13, showing economic activity slightly exceeding market expectations.

Forecasters uniformly expect no revision to German CPI in the final reading. That would leave CPI up 0.4 percent on the month and up 2.0 percent from a year ago. For HICP, the expected unrevised figures are up 0.4 percent on the month and up 2.4 percent on year.

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.