Inflation is expected to moderate to 0.1 percent, month-on-month in August from 0.4 percent in July, and slowing to 1.6 percent, year-on-year, from 1.7 percent in July, according to preliminary figures.

Monthly increases include transportation services (+2.1 percent), processed food and alcohol (+0.7 percent), and recreation (+0.3 percent), while non-regulated energy prices fell 1.7 percent.

There is a marked contrast between goods and services inflation, with the former up 0.6 percent in August from a year ago, after 0.8 percent in July. Services rose 2.7 percent year-on-year in August after a 2.6 percent gain the month before, reflecting a gap of 2.1 percentage points, up from 1.8 percent in July.

Core inflation which excludes energy and unprocessed food was up 2.1 percent from August of last year, up from 2.0 percent in July. Energy prices had an overall mitigating effect on the CPI, as the measure excluding energy rose to 2.3 percent year-on-year from 2.2 the previous month.

The harmonized inflation index (HICP) is expected to contract 0.2 percent in August from July while increasing 1.7 percent year-on-year in August and July.

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.