Japan’s National CPI moves higher in September: 2.1%

Annual growth in Japan’s National Consumer Price Index (CPI) reached 2.1% YoY in September, up from the previous reading of 1.9%, the latest figures released on Friday by the Japan Statistics Bureau showed.

Further updates to follow...

Inflation FAQs Explained

Inflation Measures Rising Prices

The increase in the cost of a representative basket of goods and services is measured by inflation. Headline inflation is generally reported as a percentage change both month on month (MoM) and year on year (YoY). By stripping out more volatile components, including food and fuel, core inflation removes items whose prices can shift with geopolitical developments and seasonal factors. Economists concentrate on this core measure, which also serves as the target for central banks. Their mandate is to maintain inflation at a manageable rate, generally around 2%.

The Consumer Price Index (CPI) Tracks Price Changes

Price movements across a basket of goods and services over time are captured by the Consumer Price Index (CPI). The measure is generally reported as a percentage change both month on month (MoM) and year on year (YoY). Central banks target core CPI, which strips out volatile food and fuel components. A rise in core CPI above 2% typically leads to higher interest rates, while a fall below 2% usually has the reverse effect. As higher interest rates support a currency, rising inflation generally strengthens it. Falling inflation tends to have the opposite effect.

Higher Inflation Supports Currency Values

A country’s currency tends to strengthen when inflation is high and weaken when it is low, even if that relationship appears counter-intuitive. The explanation lies in interest rates: central banks normally raise them to curb higher inflation. Those higher rates draw in more international capital from investors seeking an attractive return on their money.

Inflation Influences Gold Through Interest Rates

In the past, investors sought out Gold during periods of high inflation for its ability to retain value. They still often buy Gold as a safe haven during extreme market turmoil, but this is not usually the case outside such periods. High inflation prompts central banks to raise interest rates in an effort to contain it. For Gold, higher rates are a headwind: they raise the opportunity cost of holding the metal rather than an interest-bearing asset or money in a cash deposit account. Conversely, lower inflation generally supports Gold by bringing interest rates down, making the precious metal a more attractive investment alternative.

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