South Korea's headline consumer price index rose 3.3 percent on the year in May, down from 3.7 percent in April. Headline inflation remains well above the Bank of Korea's target level of 2.0 percent but has now fallen for the fourth consecutive month and is at its lowest level since October 2021, suggesting that policy tightening is helping to curb price pressures. The index rose 0.3 percent on the month, after advancing 0.2 percent previously.

Underlying inflation remained steady in May, as it has for several months. Core CPI, excluding food and energy, rose 0.3 percent on the month, as it did previously, with the year-over-year increase easing slightly from 4.0 percent to 3.9 percent.

The decline in headline inflation in May was broad-based across most categories. Food prices rose 3.9 percent on the year after advancing 5.0 percent previously, while housing and utilities costs also rose at a slower pace and transport costs fell at a sharper pace. This was partly offset by stronger price increases for clothing and footwear and health.

At the BoK's most recent policy meeting, held last week, officials left the main policy rate unchanged at 3.50 percent for the third time in a row. Officials expect inflation to moderate over 2023 but were non-committal about whether policy will need to be tightened further in coming months, noting that uncertainties about the policy outlook are"high". Ongoing stability in core inflation and the further moderation in headline 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 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.