Breaking: October brings a 2.8% rise in Japan’s Tokyo CPI inflation

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

Further updates to follow...

Inflation: Key Questions Answered

How is inflation measured?

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 excluding volatile components such as food and fuel, whose prices can shift with geopolitical developments and seasonal factors, core inflation provides the measure economists focus on. It is also the measure targeted by central banks, whose mandate is to maintain inflation at a manageable level, generally around 2%.

What does the Consumer Price Index (CPI) track?

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 in terms of percentage changes on a month-on-month (MoM) and year-on-year (YoY) basis. Central banks target Core CPI because it removes 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. Higher 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 gain value when inflation is high and weaken when inflation is low, a relationship that may appear counter-intuitive. The explanation lies in the central bank’s usual response: raising interest rates to curb higher inflation. Those higher rates draw more international capital from investors seeking attractive returns on their money.

Why does inflation affect Gold prices?

Historically, investors sought Gold during periods of high inflation because it retained its value. They still often buy Gold for its safe-haven appeal during extreme market turbulence, but this pattern does not hold most of the time. High inflation prompts central banks to raise interest rates to bring price pressures under control. For Gold, higher interest rates are a headwind: they raise the opportunity cost of owning it rather than 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.

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