Singapore's headline consumer price index rose 6.5 percent on the year in December, moderating from the 6.7 percent increase recorded in November, and rose 0.2 percent on the month after increasing 1.0 percent previously. The Monetary Authority of Singapore's preferred measure of core inflation, which excludes the cost of accommodation and private road transport, was unchanged at 5.1 percent. This index increased 0.6 percent on the month after advancing 0.2 percent previously.

Relatively steady headline inflation in December reflects offsetting moves in key components. Private transport costs rose 15.5 percent on the year after advancing 17.2 percent previously, with electricity and gas prices and retail prices also rising at a slower pace. This was partly offset by slightly bigger increases in food prices and services prices.

MAS officials expect core inflation to remain elevated"in the first half of this year" before moderating in the second half. An increase in the goods and services tax this year will deliver a one-off increase in prices, and officials forecast that core inflation will average between 3.5 percent and 4.5 percent in 2023 when the impact of the tax increase is included, and average between 2.5 percent and 3.5 percent when that impact is excluded.

At their semi-annual policy review mid-October officials tightened policy by adjusting the mid-point of the band in which Singapore's nominal effective exchange rate can move, effectively allowing the exchange rate to move in a higher range. They expressed confidence that the policy tightening put in place in recent meetings should reduce imported inflation and help curb domestic cost pressures, but with their next meeting scheduled to take place mid-April, an off-schedule move could be made if price pressures fail to moderate sufficiently in coming months.

The Consumer Price Index (CPI) measures the average price changes in a fixed basket of consumption goods and services commonly purchased by the resident households over time. It is commonly used as a measure of consumer price inflation.

The CPI is rebased once every five years to reflect the latest consumption patterns and composition of goods and services consumed by resident households. The weighting pattern for the 2014-based CPI was derived from the expenditure values collected in the Household Expenditure Survey (HES) which was conducted from October 2012 to September 2013. These expenditure values were updated to 2014 values by taking into account price changes between 2012/13 and 2014.

The CPI covers only consumption expenditure incurred by resident households. It excludes non-consumption expenditures such as loan repayments, income taxes, purchases of houses, shares, and other financial assets etc.

An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. 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.

Inflation (along with various risks) basically explains how interest rates are set on everything from mortgages and auto loans to government securities. 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.