Singapore's headline consumer price index rose 3.4 percent on the year in February, up from 2.9 percent in January. The index rose 1.0 percent on the month after falling 0.7 percent previously. The Monetary Authority of Singapore's preferred measure of core inflation, which excludes the cost of accommodation and private road transport, also picked up from 3.1 percent in January to 3.6 percent in February. This index advanced 0.5 percent on the month after an increase of 0.6 percent previously.

Higher core inflation in February was driven by food prices and services prices. Food prices rose 3.8 percent on the year after an increase of 3.3 percent previously, while the year-over-year increase in services prices accelerated from 3.8 percent to 4.2 percent. This was partly offset by more moderate increases in prices for retail and other goods and electricity and gas prices. The year-over-year increase in private transport prices also slowed from 2.9 percent to 1.4 percent.

The volatility in both headline and core inflation between January and February largely reflects the timing of lunar new year holidays. These took place in January last year but in February this year, impacting year-over-year comparisons. Officials at the MAS retained their target for appreciation of Singapore's exchange rate at their last quarterly meeting in January, and officials today expressed confidence that this appreciation will curb imported inflation over the rest of the year. An easing in labour market tightness is also expected to reduce pressure on domestic prices. The next quarterly policy meeting for the MAS is scheduled to take place mid-April.

Consumer prices in February, which in January slowed sharply and surprisingly to 2.9 percent from 3.7 percent, are expected to give back only a tick to 3.0 percent.

The Consumer Price Index (CPI) measures the average price changes in a fixed basket of consumption goods and services commonly purchased by the resident households over time. It is commonly used as a measure of consumer price inflation.

The CPI is rebased once every five years to reflect the latest consumption patterns and composition of goods and services consumed by resident households. The weighting pattern for the 2014-based CPI was derived from the expenditure values collected in the Household Expenditure Survey (HES) which was conducted from October 2012 to September 2013. These expenditure values were updated to 2014 values by taking into account price changes between 2012/13 and 2014.

The CPI covers only consumption expenditure incurred by resident households. It excludes non-consumption expenditures such as loan repayments, income taxes, purchases of houses, shares, and other financial assets etc.

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.