Taiwan's headline consumer price index rose fell 0.07 percent on the month in May after an increase of 0.76 percent in April, with the year-over-year increase moderating from 2.35 percent to 2.02 percent. Core CPI inflation, which excludes fruits, vegetables, and energy prices, slowed from 2.69 percent to 2.57 percent.

Taiwan's central bank, the Central Bank of China, increased its benchmark discount rate from 1.75 percent to 1.875 percent at its most recent quarterly policy meeting mid-March. Officials advised that they will monitor the impact of previous policy tightening and noted that further adjustments will be made if considered warranted. Its next meeting will take place later this month.

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.