Thu Apr 30 18:30:00 CDT 2015

Consensus Actual Previous
Ex Food-Y/Y 2.1% 2.2% 2.0%
CPI-M/M 0.4% -0.2%
CPI-Y/Y 2.3% 2.2%
Ex Food-M/M 0.4% -0.1%
Ex Food & Energy-M/M 0.4% 0.1%
Ex Food & Energy-Y/Y 2.1% 2.0%

March consumer prices excluding fresh food but including energy were up 2.2 percent from a year ago. Excluding the influence of the sales tax, core CPI was up 0.2 percent on the year. The total CPI was up 0.4 percent and 2.3 percent on the year. Core which excluding both food and energy was up 0.4 percent and 2.1 percent on the year. For the fiscal year 2014, the core CPI was up 2.8 percent on the year.

Among the categories making up the CPI, electronics goods dropped 1.3 percent from a year ago. TVs slipped 0.1 percent on the year while energy costs were down 1.0 percent. Food excluding perishables was up 3.8 percent from a year ago.

In a significant change of language, the BoJ said it now expected to reach its goal "around the first half of fiscal 2016" -- a phrasing that could mean as late as the end of next year. The change of language shows how hard the BoJ is finding the struggle to reignite inflation after two decades of stagnant prices.

The consumer price index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation.

The CPI has been in the spotlight as Japan struggled to make its way out of deflation. The report tracks changes in the price of a basket of goods and services that a typical Japanese household might purchase. The preferred measure is the year over year percent change. Markets will typically pay more attention to the core measure that excludes only fresh food because volatile food prices can distort overall CPI. A second core measure that excludes energy as well is also available. As the most important inflation indicator, the CPI data are closely monitored by the Bank of Japan. Rising consumer prices may prompt the BoJ to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the yen more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the yen.

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 your mortgage 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.