South Korea's headline consumer price index rose 3.1 percent on the year in February, up from an increase of 2.8 percent in January and further above the Bank of Korea's 2.0 percent target. The index rose 0.5 percent on the month after advancing 0.4 percent previously.

The increase in headline inflation was largely driven by food prices. These rose 1.4 percent on the month, with the year-over-year increase accelerating from 5.9 percent to 6.9 percent. Transport costs also rose at a faster pace, up 2.0 percent on the year after falling 0.3 percent previously.

Underlying price pressures, however, were steady in February. Core CPI, excluding food and energy, rose 2.5 percent on the year, as it did previously, and advanced 0.3 percent on the month after a previous increase of 0.4 percent. Prices rose at a slower pace for utilities, restaurants and hotels, and clothing and footwear, while the year-over-year increases in communication costs and health costs were both unchanged.
 
At its most recent policy meeting, held last month, the BoK left policy rates on hold. Officials noted then that higher agricultural prices will likely push up headline inflation in the near-term and that"there are high uncertainties around the inflation outlook". Today's data showing higher headline inflation and steady underlying inflation will likely reinforce officials' view that policy settings will need to remain restrictive in upcoming meetings.

Consumer prices in February, which in January slowed significantly and surprisingly to 2.8 percent from December's 3.2 percent, are expected to edge back higher to 3.0 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.