Japan's consumer inflation was slightly easier to stable at around 3.0% on the year in November, staying well above the Bank of Japan's 2% price stability target in the long run. The core CPI (excluding fresh food) was steady at 3.0% as a slower gain in processed food prices thanks to fading effects of earlier domestic rice supply shortages offset a faster rise in energy costs in light of higher electricity prices. The government ended its heat wave subsides for power usage (targeting overworking air conditioners, fans, refrigerators, etc.) from July through September, which was reflected in bills due from August through October.

Japan Nov core CPI (excluding fresh food) +3.0% y/y, 51st straight rise (Oct +3.0%); median forecast +3.0%

Japan Nov total CPI +2.9% y/y, 51st straight rise (Oct +3.0%); median forecast +2.9%

Japan Nov core-core CPI (ex-fresh food, energy) +3.0% y/y, 44th straight rise (Oct +3.1); median forecast +3.0%

Japan Nov core inflation pace stable as slower processed food cost rise offsets faster gains in electricity bills after heat wave subsidies end

Japan Nov CPI: processed food +7.0% (+1.69 point) vs. +7.2% (+1.74 pt) in Oct

Japan Nov CPI: energy prices +2.5% y/y (+0.19 point) vs. +2.1% (+0.16 pt) in Oct

Japan Nov CPI services (ex-owners' equivalent rent) +2.1% vs. +2.2% in Oct; goods (ex-fresh food) +4.2% vs. +4.4% in Oct

Japan Nov CPI: electricity prices +4.9% y/y (+0.17 point) vs. +3.5% (+0.12 pt) in Oct; biggest positive contributor to total CPI with +0.06 point gap

Japan’s nationwide consumer inflation is expected to remain little changed at around 3.0 percent on the year in November, staying well above the Bank of Japan’s 2 percent target. Upward pressure continues from strong food and energy prices, as well as a renewed uptrend in electricity bills following the government’s termination of subsidies two months ago. At the same time, signs of declining retail prices at supermarkets are likely to limit the pace of overall inflation during the month.

The core CPI, excluding fresh food, is forecast to rise 3.0 percent on the year in November, steady from October and following a 2.9 percent gain in September. This will be the 51st straight month of year-on-year increases. The total CPI is expected to rise 2.9 percent, compared with 3.0 percent in October and 2.9 percent in September. Underlying inflation, measured by the core-core CPI that excludes both fresh food and energy, is projected rise 3.0 percent, after a 3.1 percent increase in October and a 3.0 percent gain in September.

The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Annual 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.