South Korea's headline consumer price index rose 2.1 percent on the year in July, easing from an increase of 2.2 percent in June. The index rose 0.2 percent on the month after no change previously. Underlying inflation remained steady in July. Core CPI, excluding food and energy, rose 0.3 percent on the month after a previous increase of 0.1 percent, with the year-over-year increase unchanged at 2.0 percent. Steady core inflation reflects offsetting moves in key categories, while the small fall in headline inflation was driven by a small fall in transport costs after a previous increase.

At its most recent meeting, held last month, the Bank of Korea left its main policy rate on hold at 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, advised that they were reluctant to ease policy further at that meeting because of concerns about house price growth in the Seoul area and higher household debt. Measures introduced by the South Korean government to slow the property market appear to have had some initial effect, but officials argued that it is appropriate to give these measures more time to operate before lowering policy rates again. Today's inflation data suggests that concerns about the inflation outlook will not prevent additional policy easing if officials are confident that the property market measures are working.

CPI expected to show increases of 0.2 percent on month and 2.1 percent on year versus 0.0 percent and up 2.2 percent, respectively, in June.

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.