Singapore's headline consumer price index rose 2.2 percent on the year in August, moderating from the 2.4 percent increase recorded in July. The index rose 0.7 percent on the month after a drop of 0.3 percent previously. The Monetary Authority of Singapore's preferred measure of core inflation, which excludes the cost of accommodation and private road transport, rose from 2.5 percent in July to 2.7 percent in August. This index rose 0.3 percent on the month after falling 0.1 percent previously.

The increase in core inflation in August was largely driven by a bigger increase in services prices, up 3.3 percent on the year after a previous increase of 2.9 percent, with prices also growing at a slightly faster pace for retail and other goods. Private transport costs fell 1.0 percent on the year after a previous increase of 0.9 percent, with other categories recording steady price increases.

Officials at the MAS retained their target for appreciation of Singapore's exchange rate at their last quarterly meeting in July, and officials today again expressed confidence that this appreciation will curb imported inflation over the rest of the year. They cautioned, however, that stronger-than-expected labour market conditions could put renewed upward pressure on wage growth.

Consumer inflation in Singapore is forecast to ease to 2.2 percent in August from 2.4 percent in July.

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.