South Korea's headline consumer price index rose 4.2 percent on the year in March, down from 4.8 percent on the year in February and its lowest level since March 2022. Headline inflation has now been above the Bank of Korea's 2.0 percent target for two years, but is well down from its 6.3 percent peak in July 2022, suggesting that policy tightening is curbing price pressures. The index rose 0.2 percent on the month after advancing 0.3 percent previously.

Underlying inflation was steady in March. Core CPI, excluding food and energy, rose 0.2 percent on the month after a previous increase of 0.3 percent with the year-over-year increase unchanged at 4.0 percent.

The decline in headline inflation in March was largely driven by transport costs. These fell 5.2 percent on the year after increasing 0.4 percent previously, with this big year-over-year decline mainly reflecting the base effects of a 5.5 percent month-over-month increase 12 months earlier. Utilities prices also rose at a slower pace, up 7.1 percent after a previous increase of 7.7 percent. Food prices, in contrast, rose at a faster pace, while the year-over-year change in prices was relatively steady for restaurants and hotels, communication, and clothing and footwear.

At the BoK's most recent policy meeting, held late February, 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 further 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, scheduled to take place next week.

Consumer prices in March, which in February came in at 4.8 percent, are expected to slow to 4.3 percent. The monthly rate is seen at 0.2 percent versus February's 0.3 percent.

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.