South Korea's headline consumer price index rose 3.7 percent on the year in September, picking up further from an increase of 3.4 percent in August and moving further above the Bank of Korea's 2.0 percent target. The index advanced 0.6 percent on the month after increasing 1.0 percent previously.

This increase in headline inflation reflects a bigger increase in food prices. These rose 1.6 percent on the month, with food price inflation picking up from 4.9 percent to 5.1 percent. Transport costs also picked up, advancing 0.1 percent on the year after a previous decline of 2.5 percent.

Underlying price pressures, in contrast, were steady in September. Core CPI, excluding food and energy, rose 3.3 percent on the year, unchanged from the pace recorded in both July and August, and fell 0.1 percent on the month after a previous increase of 0.3 percent. Several categories of spending recorded smaller year-over-year price increases, including housing and utilities, communication, and restaurants and hotels.

At its most recent policy meeting late August the BoK left policy rates on hold for the fifth 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 had partly reflected the base effects of previous increases in global oil prices and advised they expect headline inflation would increase again in coming months. Today's data showing higher headline inflation are consistent with the assessment they made then, and the ongoing stability in underlying inflation will likely reinforce the case for policy to remain on hold in coming months.

Consumer prices in September, which in August spiked to a much higher-than-expected 3.4 percent from July's 2.3 percent, are expected to edge a bit higher to 3.5 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.