Taiwan's headline consumer price index rose 0.26 percent on the month in March after an increase of 0.15 percent in February, with the year-over-year increase moderating from 3.08 percent to 2.14 percent. High inflation in February was largely driven the timing of lunar new year holidays, which occurred in January last year but occurred in February this year. Core CPI, which excludes fruits, vegetables, and energy prices, fell 0.54 percent on the month in March after increasing 0.79 percent in February, with the year-over-year increase slowing from 2.90 percent to 2.13 percent.

The Central Bank of the Republic of China (Taiwan) increased its main policy rate by 12.5 basis points from 1.875 percent to 2.00 percent at its quarterly policy meeting mid-March. This was the first increase in the rate in twelve months and takes the rate to its highest level since 2008. Although officials expect inflation will trend lower this year, they expressed concerns that price pressures have remained too strong and that a proposed increase in domestic electricity prices this month could boost inflation expectations.

Consumer prices in March are expected to ease to 2.5 percent versus a 3.08 percent year-over-year rate in February that, inflated by timing of the lunar holidays, was up from January's 1.79 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.