Breaking: Tokyo CPI inflation in Japan rises 2.8% in October

October’s headline Tokyo Consumer Price Index (CPI) increased by 2.8% YoY, up from 2.7% the month before, according to figures released on Friday by the Statistics Bureau of Japan.

Further updates to follow.

Inflation: Frequently Asked Questions

Inflation Measures Rising Prices

A rise in the cost of a representative basket of goods and services is measured by inflation. The headline rate 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 excludes prices that can shift with geopolitical developments and seasonal factors. Economists concentrate on this core measure, which central banks also target as part of their mandate to maintain inflation at a manageable level, generally around 2%.

The Consumer Price Index (CPI) Tracks Price Changes

Changes in the prices of 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 because it strips out volatile food and fuel components. A reading 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 Typically Supports a Currency

A country’s currency tends to gain value when inflation is high and weaken when it is low, however counter-intuitive that may appear. To curb higher inflation, the central bank will usually raise interest rates. Those higher rates draw in more international capital from investors seeking attractive returns 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 turbulence, but this is not usually the case at other times. The reason is that central banks raise interest rates to counter high inflation. 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 and making the precious metal a more attractive investment alternative.

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