South Korea's headline consumer price index rose 2.3 percent on the year in July, slowing from an increase of 2.7 percent in June. Headline inflation has now fallen in each of the last six months and is close to the Bank of Korea's 2.0 percent target. The index advanced 0.1 percent on the month after no change previously. Food prices rose 3.4 percent on the year in July, down from 4.2 percent in June, while transport costs fell 10.7 percent on the year after a previous decline of 11.0 percent.

Underlying price pressures also moderated in July. Core CPI, excluding food and energy, rose 3.3 percent on the year after a previous increase of 3.5 percent, and advanced 0.2 percent on the month after a previous increase of 0.1 percent. Several categories of spending recorded smaller year-over-year price increases, including housing and utilities, furnishing and household equipment, and education costs.

At its most recent policy meeting mid-July the BoK left policy rates on hold for the fourth meeting in a row after they increased rates by a cumulative 275 basis points since late 2021. Officials noted then that the recent fall in inflation partly reflected the base effects of previous increases in global oil prices and advised they expect headline inflation to fluctuate around 3.0 percent for the rest of the year. Today's data showing inflation falling further below that level suggests that officials will remain confident that additional policy tightening is not required in coming months.

Consumer prices in July, which in June fell to a lower-than-expected 2.7 percent from 3.3 percent, are expected to fall to 2.5 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.