South Korea's headline consumer price index rose 4.8 percent on the year in February, down from 5.2 percent in January and its lowest level since March 2022. Nevertheless, headline inflation has now been above the Bank of Korea's 2.0 percent target for nearly two years. The index rose 0.3 percent on the month after advancing 0.8 percent previously.

Underlying inflation eased slightly in February. Core CPI, excluding food and energy, rose 0.3 percent on the month after a previous increase of 0.6 percent with the year-over-year increase moderating from 4.1 percent to 4.0 percent.

The small decline in headline inflation in January was largely driven by transport costs, up 0.4 percent on the year after a previous increase of 3.0 percent, and utilities prices, up 7.7 percent after a previous increase of 8.0 percent. The year-over-year change in prices was relatively steady for other major categories, including food, clothing and footwear, and communication.

At the BoK's most recent policy meeting, held last month, officials left the main policy rate unchanged at 3.50 percent. Officials expect inflation to moderate over 2023 and advised that they will need to"judge" whether further rate increases are"warranted" based on"the pace of inflation slowdown and developments in the uncertainties". The moderation in price pressures shown in today's data will likely boost the chances that rates will be left unchanged at the BoK's next policy meeting.

The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Annual changes in the CPI represent the rate of inflation.

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.