| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | -0.6% | -0.7% to -0.5% | -0.6% | 0.4% |
| CPI - Y/Y | 3.3% | 3.2% to 3.3% | 3.3% | 4.3% |
| Ex-Fresh Food - M/M | -0.8% | -0.9% to -0.8% | -0.7% | 0.3% |
| Ex-Fresh Food - Y/Y | 3.1% | 3.0% to 3.2% | 3.1% | 4.2% |
| Ex-Fresh Food & Energy - M/M | 0.4% | 0.3% to 0.4% | 0.4% | 0.4% |
| Ex-Fresh Food & Energy - Y/Y | 3.4% | 3.3% to 3.4% | 3.5% | 3.2% |
Highlights
Consumer inflation in Japan slowed significantly to just above 3 percent in February in two key measures after hitting four-decade highs of over 4 percent in January as the government expanded subsidies to electricity and natural gas suppliers, data from the Ministry of Internal Affairs and Communication released Friday showed.
While overall energy costs made a negative contribution to the CPI for the first time in nearly two years, many households continued to feel squeezed by rampant markups in food and beverages as companies are trying to reflect last year's spike in producer and import costs. The utilities subsidies that took place in January and were reflected in February bills will continue through September.
Service prices in Japan have been subdued due to slow wage hikes but they are now showing a slight uptick to a 1.3 percent rise on the year in February, compared to increases of 1.2 percent in January and 0.8 percent in December. Services prices excluding owners' equivalent rent rose 1.9 percent in February, up from 1.7 percent in January and 1.1 percent in December. Goods prices, which include utilities, posted a slower gain of 5.1 percent in February after surging 7.2 percent in January.
The Econoday Consensus Divergence Index stands at plus 15, above zero, which indicates the Japanese economy is performing better than expected after outperforming earlier. Excluding the impact of inflation, the index is at plus 30.
The national average core consumer price index (excluding fresh food) rose 3.1 percent from a year earlier in February in line with the median economist forecast for a 3.1 percent rise. It is the 18th straight year-over-year increase after rising 4.2 percent in January, 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 in January 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 in January showed the median forecast by the nine-member board for the core CPI annual rate was 3.0 percent for fiscal 2022 ending this month. The average of year-over-year gains in the core reading for the first 11 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) -- jumped to a fresh 41-year high of 3.5 percent in February from 3.2 percent in January, 3.0 percent in December, 2.8 percent in November and 2.5 percent in October, marking the 11th straight increase. It was above with the median economist forecast for a 3.4 percent rise. The 3.5 percent rise is the largest since the 3.5 percent increase January 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 that the core-core CPI would rise 2.1 percent in fiscal 2022 (so far up 2.0 percent), revised up from its October forecast of 1.8 percent, and that the increase would slow to 1.8 percent in fiscal 2023 and 1.6 percent in fiscal 2024.
The total CPI surged 3.3 percent on year in February, as expected, marking the 18th consecutive year-over-year rise and slowing from increases of 4.3 percent in January, 4.0 percent in December, 3.8 percent in November and 3.7 percent in October.
While overall energy costs made a negative contribution to the CPI for the first time in nearly two years, many households continued to feel squeezed by rampant markups in food and beverages as companies are trying to reflect last year's spike in producer and import costs. The utilities subsidies that took place in January and were reflected in February bills will continue through September.
Service prices in Japan have been subdued due to slow wage hikes but they are now showing a slight uptick to a 1.3 percent rise on the year in February, compared to increases of 1.2 percent in January and 0.8 percent in December. Services prices excluding owners' equivalent rent rose 1.9 percent in February, up from 1.7 percent in January and 1.1 percent in December. Goods prices, which include utilities, posted a slower gain of 5.1 percent in February after surging 7.2 percent in January.
The Econoday Consensus Divergence Index stands at plus 15, above zero, which indicates the Japanese economy is performing better than expected after outperforming earlier. Excluding the impact of inflation, the index is at plus 30.
The national average core consumer price index (excluding fresh food) rose 3.1 percent from a year earlier in February in line with the median economist forecast for a 3.1 percent rise. It is the 18th straight year-over-year increase after rising 4.2 percent in January, 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 in January 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 in January showed the median forecast by the nine-member board for the core CPI annual rate was 3.0 percent for fiscal 2022 ending this month. The average of year-over-year gains in the core reading for the first 11 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) -- jumped to a fresh 41-year high of 3.5 percent in February from 3.2 percent in January, 3.0 percent in December, 2.8 percent in November and 2.5 percent in October, marking the 11th straight increase. It was above with the median economist forecast for a 3.4 percent rise. The 3.5 percent rise is the largest since the 3.5 percent increase January 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 that the core-core CPI would rise 2.1 percent in fiscal 2022 (so far up 2.0 percent), revised up from its October forecast of 1.8 percent, and that the increase would slow to 1.8 percent in fiscal 2023 and 1.6 percent in fiscal 2024.
The total CPI surged 3.3 percent on year in February, as expected, marking the 18th consecutive year-over-year rise and slowing from increases of 4.3 percent in January, 4.0 percent in December, 3.8 percent in November and 3.7 percent in October.
Market Consensus Before Announcement
The annual consumer inflation rate in Japan is expected to slow significantly to just above 3 percent in February in two key measures, after hitting four-decade highs of over 4 percent in January, thanks to the government's new program to provide subsidies to consumer electricity and natural gas suppliers. The total CPI is forecast to post a 3.3 percent rise after January's 4.3 percent surge. The core CPI (excluding fresh food) is seen up 3.1 percent on year versus 4.2 percent in the prior month, with processed food and durable goods prices seen leading the increase. By contrast, the core-core measure (excluding fresh food and energy) is expected to show an accelerate annual rate of 3.4 percent following a 3.2 percent gain.
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.
