South Korea's headline consumer price index rose 2.2 percent on the year in June, picking up from an increase of 1.9 percent in May. The index was unchanged on the month after falling 0.1 percent previously. Underlying inflation remained steady in June. Core CPI, excluding food and energy, rose 0.1 percent on the month after a previous increase of 0.2 percent, with the year-over-year increase unchanged at 2.0 percent. Steady core inflation reflects offsetting moves in key categories, while the increase in headline inflation was driven by a bigger increase in food prices and a small increase in transport costs after a previous decline.

At its most recent meeting, held late May, the Bank of Korea cut its main policy rate by 25 basis points to 2.50 percent, in line with the consensus forecast. In the statement accompanying that decision, officials expressed confidence that inflation will remain stable and close to their target level. Officials, however, revised down their growth forecasts, largely reflecting the impact of global trade tensions. They also advised that they maintain a rate cut stance, with the timing and pace of additional easing to be guided by incoming data. With other data showing weakness in activity and sentiment. this stability in core inflation will likely strengthen the case for additional policy easing at the BoK's next meeting scheduled for next week.

CPI expected to show no change on month and an increase of 2.1 percent on year versus minus 0.1 percent and up 1.9 percent in May.

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.