South Korea's headline consumer price index rose 1.5 percent on the year in November after an increase of 1.3 percent in October, below the Bank of Korea's 2.0 percent target for the third consecutive month. The index fell 0.3 percent on the month after no change previously. The increase in headline inflation was largely driven by a rebound in transport prices. These rose 1.0 percent on the month after a fall of 1.2 percent previously and fell 1.1 percent on the year after a previous fall of 4.0 percent. Food price inflation eased from 1.4 percent to 1.3 percent.

Underlying price pressures were steady in November. Core CPI, excluding food and energy, rose 1.7 percent on the year, down slightly from the 1.8 percent increase recorded in October, and were unchanged on the month after a previous increase of 0.2 percent. The year-over-year increase in prices was relatively steady for most major categories of spending.

At their most recent meeting last week, officials at the BoK lowered the main policy rate by 25 basis points from 3.25 percent to 3.00 percent. In the statement accompanying that decision, officials retained their forecast for core inflation to average 2.2 percent this year and revised their 2025 forecast down slightly from 2.0 percent to 1.9 percent. Noting uncertainties about the growth outlook, officials indicated that further rate cuts will be considered in upcoming meetings.

Headline annual inflation slowed to 1.3 percent in October, its lowest since early 2021, with no change on the month. That presumably had some bearing on the Bank of Korea's surprise rate cut last week, along with concern about an economic slowdown and fear of trade disruptions. The consensus for November looks for a modest 0.2 percent increase on the month and a gain of 1.6 percent on year.

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.