Tokyo core CPI jumped to 2.7%, partly on base effects. Do you adjust for one-off effects before you trade an inflation number?

Tokyo's core CPI, excluding fresh food, rose to 2.7% in September from 1.8% in August, and the measure excluding fresh food and energy reached 3.0%. The Statistics Bureau's breakdown credits childcare fees (0.29 percentage point), water charges (0.24) and lodging charges (0.12) with most of the widening in the all-items rate. Local press reports tied the water and childcare moves to the end of Tokyo government measures from last year (full report). Japan's national core inflation was 1.7% in August (report), and the national figure for September is due on 23 October.

So a headline that looks like a sharp acceleration may be partly a base effect: a year-earlier price that was unusually low makes this year's change look large. The Bank of Japan raised its rate to 1.25% on 18 September and its board debated how fast to go next (opinions report).

How do you handle a number like this?

• Do you try to strip out one-off or policy-driven items before you form a view, or do you trade the headline as the market does?
• Where do you find the breakdown of what drove a reading, and how soon after the release do you check it?
• Has a base effect ever fooled you into overreacting to an inflation print?
• How much weight do you give Tokyo CPI as a leading indicator for the national figure?

CPI explained is a good refresher on headline against core.

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