South Korea's headline consumer price index rose 1.6 percent on the year in September after an increase of 2.0 percent in August, below the Bank of Korea's 2.0 percent target. This is the first time headline inflation has been below the target level since March 2021. The index rose 0.1 percent on the month after advancing 0.4 percent previously. The fall in headline inflation was largely driven by transport prices. These fell 2.0 percent on the month after increasing 0.1 percent previously, with the year-over-year increase weakening from an increase of 1.8 percent to a fall of 1.2 percent. Food price inflation also moderated from 2.0 percent to 1.8 percent.

Underlying price pressures also eased in September. Core CPI, excluding food and energy, rose 2.0 percent on the year, down slightly from the 2.1 percent increase recorded in each of the previous three months, and fell 0.2 percent on the month after a previous increase of 0.1 percent. Core inflation has fallen only slightly from 2.5 percent at the start of the year to its current level. The year-over-year increase in prices was relatively steady for most major categories of spending.

At its most recent policy meeting, held August, the BoK left policy rates on hold. Officials advised then that they had retained their forecast for core inflation to average 2.2 percent this year. Although they noted uncertainties about the inflation, they advised that they now have"greater confidence that inflation will converge on the target level".

Although officials concluded that monetary policy should remain on hold for now, they also noted that they will"examine the proper timing of rate cuts while maintaining a restrictive monetary policy stance". Today's data showing a fall in both headline and core inflation could strengthen the case for a rate cut in upcoming meetings. The next BoK meeting is scheduled to be held next week.

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.