| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.6% | 0.5% to 0.6% | 0.4% | 0.3% |
| CPI - Y/Y | 4.4% | 4.2% to 4.5% | 4.3% | 4.0% |
| Ex-Fresh Food - M/M | 0.4% | 0.4% to 0.4% | 0.3% | 0.4% |
| Ex-Fresh Food - Y/Y | 4.3% | 4.2% to 4.3% | 4.2% | 4.0% |
| Ex-Fresh Food & Energy - M/M | 0.4% | 0.3% to 0.4% | 0.4% | 0.2% |
| Ex-Fresh Food & Energy - Y/Y | 3.2% | 3.2% to 3.4% | 3.2% | 3.0% |
Highlights
Consumer inflation in Japan picked up its pace further in January, with the core measure setting a fresh 41-year high of 4.2 percent, as firms continued raising prices for food and beverages to reflect a spike in last year's producer costs and utility bills remained on an uptrend, data from the Ministry of Internal Affairs and Communication released Friday showed.
The largest contribution of the accelerated ex-fresh food rate of 4.2 percent, compared to December's 4.0 percent, came from a smaller drop in hotel fees. The downward pressure from the government's domestic travel discount program, which took effect last October, eased in January, when it was resumed on a smaller scale after a brief suspension during the yearend and New Year holidays.
The yen has regained some ground against the dollar to around ¥130 in January from ¥147 in October but remains relatively weak compared to its year-earlier levels of around ¥115, eroding Japan's purchasing power and keeping the costs for importing materials and products high.
The current spike in consumer inflation has been caused by elevated energy and commodities costs and supply constraints. Contrary to upward stickiness of service costs in North America, service prices in Japan are structurally subdued, up just 1.2 percent on year in January, compared to a 7.2 percent surge in goods prices. Many firms have been cautious about raising wages, although some big firms are giving higher salaries ahead of their usual annual change in April or increasing benefits so that their employees can tide over.
Looking ahead, households will see some easing in elevated utility costs as the government is providing subsidies to consumer electricity and natural gas providers from January to September this year, which will be reflected in utility bills, and thus CPI data, in February onward.
The Econoday Consensus Divergence Index stands at minus 33, well below zero, which indicates the Japanese economy is performing worse than expected after outperforming earlier. Excluding the impact of inflation, the index is at minus 32.
Bank of Japan Governor Haruhiko Kuroda, whose second five-year term ends on April 8, has said repeatedly that the bank needs to maintain its accommodative monetary policy stance until inflation reaches stable 2 percent with solid wage growth and a positive output gap.
Economics professor Kazuo Ueda, who served on the bank's nine-member policy board from 1998 until 2005, has been nominated by the government to succeed Kuroda and is likely to win parliamentary approval due to the ruling coalition's majority in both chambers. Ueda told reporters recently that it is necessary to continue monetary easing under the current economic conditions.
The national average core consumer price index (excluding fresh food) rose 4.2 percent from a year earlier in January, coming in slightly below the median economist forecast for a 4.3 percent rise. It is the 17th straight year-over-year increase after rising 4.0 percent in December, 3.7 percent in November and 3.6 percent in October. The 0.1 percent rise in September 2021 was the first increase in 18 months.
The 4.2 percent rise is a 41-year high, the largest increase since the 4.2 percent gain in September 1981, with or without the direct impact of the sales tax hikes in 2014 (from 5 percent to 8 percent) and in 1997 (from 3 percent to 5 percent) and the introduction of the sales tax in 1989. The tax was further raised to 10 percent in 2019 but had only a limited impact on prices.
The BoJ's quarterly Outlook Report released last month showed the median forecast by the nine-member board for the core CPI annual rate was revised up to 3.0 percent for fiscal 2022 ending in March from 2.9 percent projected in October. The average of year-over-year gains in the core reading for the first 10 months of fiscal 2022 is 3.0 percent, compared to a 0.1 percent rise in the full year of fiscal 2021.
The board projected that the increase in the core CPI would slow to 1.6 percent in fiscal 2023 as the base effects of the current spike in energy and commodities prices fade, unchanged from its October forecast. For fiscal 2024, the board expects the core reading to rise 1.8 percent, slightly higher than its 1.6 percent projection made three months ago, noting the impact of government subsidies to cap retail gasoline and utility prices will wane.
The underlying inflation rate -- measured by the core-core CPI (excluding fresh food and energy) -- accelerated to 3.2 percent in January from 3.0 percent in December, 2.8 percent in November and 2.5 percent in October, marking the 10th straight increase. It was in line with the median economist forecast for a 3.2 percent rise. The 3.2 percent rise is the largest since the 3.2 percent increase in March 1990, which was caused by the April 1989 introduction of the sales tax. Excluding the direct impact of the tax hike, the index is now an over 40-year high since +3.2 percent seen in April 1982. This narrow measure is not receiving upward pressures from elevated energy prices but has been gradually pushed up by markups in various items.
As a reference forecast, the BoJ board projected last month that the core-core CPI would rise 2.1 percent in fiscal 2022 (so far up 1.9 percent), revised up from its October forecast of 1.8 percent, and that the increase would slow to 1.8 percent (revised up from 1.6 percent) in fiscal 2023 and 1.6 percent (unrevised) in fiscal 2024.
The total CPI surged 4.3 percent on year in January, coming in just below the consensus forecast of a 4.4 percent increase and marking the 17th consecutive year-over-year increase following increases of 4.0 percent in December, 3.8 percent in November and 3.7 percent in October. Most of the 0.3 percentage point acceleration from December to January came from smaller year-on-year drops in hotel charges and auto insurance premiums. Fresh food prices, a volatile factor, rose 7.2 percent on year and pushed up the overall index by 0.30 percentage point after rising 4.9 percent (up 0.19 point) the previous month. The 4.3 percent increase in total CPI is a 41-year high, the largest since the 4.3 percent rise in December 1981.
The largest contribution of the accelerated ex-fresh food rate of 4.2 percent, compared to December's 4.0 percent, came from a smaller drop in hotel fees. The downward pressure from the government's domestic travel discount program, which took effect last October, eased in January, when it was resumed on a smaller scale after a brief suspension during the yearend and New Year holidays.
The yen has regained some ground against the dollar to around ¥130 in January from ¥147 in October but remains relatively weak compared to its year-earlier levels of around ¥115, eroding Japan's purchasing power and keeping the costs for importing materials and products high.
The current spike in consumer inflation has been caused by elevated energy and commodities costs and supply constraints. Contrary to upward stickiness of service costs in North America, service prices in Japan are structurally subdued, up just 1.2 percent on year in January, compared to a 7.2 percent surge in goods prices. Many firms have been cautious about raising wages, although some big firms are giving higher salaries ahead of their usual annual change in April or increasing benefits so that their employees can tide over.
Looking ahead, households will see some easing in elevated utility costs as the government is providing subsidies to consumer electricity and natural gas providers from January to September this year, which will be reflected in utility bills, and thus CPI data, in February onward.
The Econoday Consensus Divergence Index stands at minus 33, well below zero, which indicates the Japanese economy is performing worse than expected after outperforming earlier. Excluding the impact of inflation, the index is at minus 32.
Bank of Japan Governor Haruhiko Kuroda, whose second five-year term ends on April 8, has said repeatedly that the bank needs to maintain its accommodative monetary policy stance until inflation reaches stable 2 percent with solid wage growth and a positive output gap.
Economics professor Kazuo Ueda, who served on the bank's nine-member policy board from 1998 until 2005, has been nominated by the government to succeed Kuroda and is likely to win parliamentary approval due to the ruling coalition's majority in both chambers. Ueda told reporters recently that it is necessary to continue monetary easing under the current economic conditions.
The national average core consumer price index (excluding fresh food) rose 4.2 percent from a year earlier in January, coming in slightly below the median economist forecast for a 4.3 percent rise. It is the 17th straight year-over-year increase after rising 4.0 percent in December, 3.7 percent in November and 3.6 percent in October. The 0.1 percent rise in September 2021 was the first increase in 18 months.
The 4.2 percent rise is a 41-year high, the largest increase since the 4.2 percent gain in September 1981, with or without the direct impact of the sales tax hikes in 2014 (from 5 percent to 8 percent) and in 1997 (from 3 percent to 5 percent) and the introduction of the sales tax in 1989. The tax was further raised to 10 percent in 2019 but had only a limited impact on prices.
The BoJ's quarterly Outlook Report released last month showed the median forecast by the nine-member board for the core CPI annual rate was revised up to 3.0 percent for fiscal 2022 ending in March from 2.9 percent projected in October. The average of year-over-year gains in the core reading for the first 10 months of fiscal 2022 is 3.0 percent, compared to a 0.1 percent rise in the full year of fiscal 2021.
The board projected that the increase in the core CPI would slow to 1.6 percent in fiscal 2023 as the base effects of the current spike in energy and commodities prices fade, unchanged from its October forecast. For fiscal 2024, the board expects the core reading to rise 1.8 percent, slightly higher than its 1.6 percent projection made three months ago, noting the impact of government subsidies to cap retail gasoline and utility prices will wane.
The underlying inflation rate -- measured by the core-core CPI (excluding fresh food and energy) -- accelerated to 3.2 percent in January from 3.0 percent in December, 2.8 percent in November and 2.5 percent in October, marking the 10th straight increase. It was in line with the median economist forecast for a 3.2 percent rise. The 3.2 percent rise is the largest since the 3.2 percent increase in March 1990, which was caused by the April 1989 introduction of the sales tax. Excluding the direct impact of the tax hike, the index is now an over 40-year high since +3.2 percent seen in April 1982. This narrow measure is not receiving upward pressures from elevated energy prices but has been gradually pushed up by markups in various items.
As a reference forecast, the BoJ board projected last month that the core-core CPI would rise 2.1 percent in fiscal 2022 (so far up 1.9 percent), revised up from its October forecast of 1.8 percent, and that the increase would slow to 1.8 percent (revised up from 1.6 percent) in fiscal 2023 and 1.6 percent (unrevised) in fiscal 2024.
The total CPI surged 4.3 percent on year in January, coming in just below the consensus forecast of a 4.4 percent increase and marking the 17th consecutive year-over-year increase following increases of 4.0 percent in December, 3.8 percent in November and 3.7 percent in October. Most of the 0.3 percentage point acceleration from December to January came from smaller year-on-year drops in hotel charges and auto insurance premiums. Fresh food prices, a volatile factor, rose 7.2 percent on year and pushed up the overall index by 0.30 percentage point after rising 4.9 percent (up 0.19 point) the previous month. The 4.3 percent increase in total CPI is a 41-year high, the largest since the 4.3 percent rise in December 1981.
Market Consensus Before Announcement
Consumer inflation in Japan is expected to have picked up its pace further in January, with the core measure (excluding fresh food) setting a fresh 41-year high of 4.3 percent, up from 4.0 percent in December, as firms continued raising prices for food and beverages to reflect a spike in last year's producer costs and utility bills remained on an uptrend. The downward pressure from the government's domestic travel discount program that took effect in October eased in January, when it was resumed on a smaller scale after a brief suspension during the year-end and New Year holidays. The underlying annual inflation rate -- measured by the core-core CPI (excluding fresh food and energy) -- is also forecast to have accelerated to 3.2 percent from 3.0 percent. The total CPI is seen up 4.4 percent after a 4.0 percent rise the previous month.
Definition
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.
Description
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.
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.
