Taiwan's headline consumer price index rose 0.55 percent on the month in August after advancing 0.10 percent in July, with the year-over-year increase picking up from 1.88 percent to 2.52 percent. This increase in headline inflation was largely driven by strong increases in fruit and vegetable prices caused by typhoons during the month.

Underlying prices pressures were more subdued. Core CPI, which excludes fruits, vegetables, and energy prices, fell 0.11 percent on the month in August after increasing 0.08 percent in July, with the year-over-year increase moderating from 2.73 percent to 2.56 percent.

Taiwan's CPI is expected to edge higher to 2.0 percent on the year in August versus 1.88 percent in July.

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.