2.1%: Japan records a September rise in National CPI

Inflation in Japan accelerated in September, with the National Consumer Price Index (CPI) rising 2.1% YoY against the previous reading of 1.9%. The latest figures were released on Friday by the Japan Statistics Bureau.

Further updates to follow...

Key questions on inflation

How is inflation defined?

A rise in the cost of a representative basket of goods and services is measured as inflation. The headline figure is generally reported as a percentage change, both month-on-month (MoM) and year-on-year (YoY). To calculate core inflation, more volatile components such as food and fuel are excluded, as their prices can shift with geopolitical developments and seasonal influences. Economists concentrate on this core measure, which also serves as the target for central banks. Their mandate is to maintain inflation at a manageable level, typically around 2%.

What does the Consumer Price Index (CPI) measure?

Changes in the prices of a basket of goods and services over time are tracked by the Consumer Price Index (CPI). The index is generally reported as a percentage change on both a month-on-month (MoM) and year-on-year (YoY) basis. Central banks target Core CPI because it leaves out volatile food and fuel components. A Core CPI reading above 2% typically leads to higher interest rates, while a reading below 2% usually has the reverse effect. Higher interest rates support a currency, so rising inflation generally strengthens it; declining inflation tends to have the opposite effect.

How does inflation affect currency values?

A country's currency tends to appreciate when inflation is high and weaken when inflation is low, even if that relationship appears counter-intuitive. The explanation lies in the usual central bank response: interest rates are raised to tackle higher inflation. Those higher rates draw greater capital inflows from global investors seeking an attractive return on their money.

Why do inflation changes affect Gold prices?

In the past, investors sought Gold during periods of high inflation for its ability to retain value. They still often purchase it as a safe haven during severe market turmoil, but this is not the usual pattern most of the time. High inflation prompts central banks to raise interest rates to bring price pressures under control. Gold is disadvantaged by higher interest rates, which raise the opportunity cost of holding it rather than investing in an interest-bearing asset or keeping 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.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights