| Actual | Previous | Consensus | Consensus Range | |
|---|---|---|---|---|
| CPI - M/M | -0.1% | 0.5% | ||
| CPI - Y/Y | 3.2% | 3.5% | 3.3% | 3.2% to 3.6% |
| Ex-Fresh Food - M/M | -0.1% | 0.5% | ||
| Ex-Fresh Food - Y/Y | 3.2% | 3.5% | 3.3% | 3.2% to 3.7% |
| Ex-Fresh Food & Energy - M/M | 0.2% | 0.6% | ||
| Ex-Fresh Food & Energy - Y/Y | 3.9% | 3.8% | 4.0% | 3.8% to 4.0% |
Highlights
Consumer prices in Tokyo, the leading indicator of the national average, decelerated in May to a 3.2 percent rise on year from 3.5 percent in April in both the total CPI and the core measure (excluding fresh food) as gasoline and utilities subsides pushed down energy costs further amid slowing global demand, data from the Ministry of Internal Affairs and Communications released Friday showed.
By contrast, the core-core CPI (excluding fresh food and energy) accelerated to 3.9 percent from 3.8 percent, staying at a 41-year high.
Markups in processed food led the above 3 percent inflation while the year-over-year rise in durable goods slowed in May from April. The reopening of the economy without strict Covid public health rules and eased border control boosted demand for tourism, pushing up accommodation costs.
The government scheme aimed at easing the pain of many households covers a period from January to September this year, which is reflected in utility bills issued in February onward. But the yen has depreciated to around ¥140 to the dollar in recent trading, which is firmer than the ¥150 level seen in October last year but weaker than the year-ago level of ¥128, keeping Japanese imports relatively expensive.
At its latest meeting on April 27-28, the Bank of Japan's policy board under the new governor, Kazuo Ueda, decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
The board said in its statement that it will patiently continue with monetary easing"while nimbly responding to developments in economic activity and prices as well as financial conditions," indicating that it could adjust its yield curve control framework to allow slightly higher interest rates.
The Econoday Consensus Divergence Index stood at plus 1, just above zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the index was at plus 4.
The core consumer price index (excluding fresh food) in the capital's 23 wards rose 3.2 percent in May, coming in slightly below the median economist forecast of a 3.3 percent rise (forecasts ranged from 3.2 percent to 3.7 percent). It is the 21st straight year-over-year rise after rising 3.5 percent in April, 3.2 percent in March, 3.3 percent in February and 4.3 percent in January.
In January, the core CPI's annual rate rose at the fastest pace in more than 41 years, since the 4.3 percent rise in May 1981, with or without the direct impact of the sales tax hikes in 2014 and 1997 and the introduction of the tax in April 1989. Even during the 12-month period of being boosted by a sharp sales tax hike to 8 percent from 5 percent in April 2014, the core CPI peaked at a 2.8 percent rise. The sales tax is currently at 10 percent after another rise in 2019.
The prices of goods excluding fresh food rose 5.2 percent from a year earlier in May, pushing up the Tokyo area total CPI by 2.11 percentage points, with the pace of increase decelerating from 5.8 percent (a positive 2.36-point contribution) in April. The prices of services excluding owners' equivalent rent gained 2.7 percent on the year, adding 0.97 point to the CPI, up slightly from 2.6 percent (plus 0.92 point) in April. The uptrend reflects moves among many firms to raise wages at a faster pace than in recent years to secure workers.
The core-core CPI (excluding fresh food and energy) -- a key indicator of the underlying trend of inflation -- rose 3.9 percent on the year in May for the 14th straight rise. It was slightly below the median forecast of a 4.0 percent rise. It followed increases of 3.8 percent in April, 3.4 percent in March, 3.1 percent in February and 3.0 percent in January. With or without the direct impact of the sales tax increases in 2014 and in 1997, the 3.9 percent gain in May is the highest in 41 years, since the 4.2 percent rise in April 1982. This measure is not affected by fluctuations in energy prices but it has been on an uptrend in the face of markups in processed food and durable goods.
The total CPI gained 3.2 percent on year in May, marking the 21st straight year-over-year gain and coming in just under the median forecast of a 3.3 percent rise (forecasts ranged from 3.2 percent to 3.6 percent). It followed increases of 3.5 percent in April, 3.3 percent in March, 3.4 percent in February and 4.4 percent in January. The 4.4 percent increase in January is the largest in more than 41 years, since the 4.8 percent gain in June 1981.
Fresh food prices, a volatile factor, continued rising, up 4.3 percent on year in May, pushing up the overall index by 0.18 percentage point, but the pace of increase decelerated from a 4.7 percent rise and a 0.20-point contribution the previous month.
Food excluding perishables rose 8.9 percent on year (a 1.92-point contribution to the total CPI) in April, after rising the same rate in April. This category replaced energy as the largest contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points) and the gap between the two has widened further as energy prices began to fall.
Energy prices slumped 8.2 percent on year in May, pushing down the total index by 0.47 percentage points, after falling 2.6 percent (minus 0.14 point) in April, rising just 0.3 percent (plus 0.02 points) in March and 5.3 percent (plus 0.26 point) in February, easing further from increases over 20 percent seen earlier.
In the energy category, gasoline prices dipped 0.4 percent on the year, making zero contribution to the total CPI in May, after falling 2.6 percent (a negative 0.02-point contribution) in April. Electricity charges slumped 16.1 percent (minus 0.50 point) in April after slipping 7.9 percent (minus 0.24 point) in April. City gas prices rose 1.9 percent (plus 0.03 point), slowing further from a 6.2 percent rise (plus 0.11 point) the previous month.
The prices for household durable goods posted their 14th straight year-on-year increase, up 7.4 percent, and pushed up the CPI by 0.09 point in May after rising 12.8 percent (plus 0.15 point) in April.
Accommodations costs rose 11.5 percent from a year earlier with a positive 0.14-point contribution in May, accelerating from an 8.1 percent rise (plus 0.10 point) in April, as strong pent-up demand for spending on services outpaced the downward effect of subsidies. It followed no change in March and a 6.1 percent drop (minus 0.07 point) in February. The government began subsidizing domestic travel under a new nationwide discount program in October 2022. After a brief suspension during the yearend and new year holidays, it resumed the scheme on a smaller scale.
By contrast, the core-core CPI (excluding fresh food and energy) accelerated to 3.9 percent from 3.8 percent, staying at a 41-year high.
Markups in processed food led the above 3 percent inflation while the year-over-year rise in durable goods slowed in May from April. The reopening of the economy without strict Covid public health rules and eased border control boosted demand for tourism, pushing up accommodation costs.
The government scheme aimed at easing the pain of many households covers a period from January to September this year, which is reflected in utility bills issued in February onward. But the yen has depreciated to around ¥140 to the dollar in recent trading, which is firmer than the ¥150 level seen in October last year but weaker than the year-ago level of ¥128, keeping Japanese imports relatively expensive.
At its latest meeting on April 27-28, the Bank of Japan's policy board under the new governor, Kazuo Ueda, decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
The board said in its statement that it will patiently continue with monetary easing"while nimbly responding to developments in economic activity and prices as well as financial conditions," indicating that it could adjust its yield curve control framework to allow slightly higher interest rates.
The Econoday Consensus Divergence Index stood at plus 1, just above zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the index was at plus 4.
The core consumer price index (excluding fresh food) in the capital's 23 wards rose 3.2 percent in May, coming in slightly below the median economist forecast of a 3.3 percent rise (forecasts ranged from 3.2 percent to 3.7 percent). It is the 21st straight year-over-year rise after rising 3.5 percent in April, 3.2 percent in March, 3.3 percent in February and 4.3 percent in January.
In January, the core CPI's annual rate rose at the fastest pace in more than 41 years, since the 4.3 percent rise in May 1981, with or without the direct impact of the sales tax hikes in 2014 and 1997 and the introduction of the tax in April 1989. Even during the 12-month period of being boosted by a sharp sales tax hike to 8 percent from 5 percent in April 2014, the core CPI peaked at a 2.8 percent rise. The sales tax is currently at 10 percent after another rise in 2019.
The prices of goods excluding fresh food rose 5.2 percent from a year earlier in May, pushing up the Tokyo area total CPI by 2.11 percentage points, with the pace of increase decelerating from 5.8 percent (a positive 2.36-point contribution) in April. The prices of services excluding owners' equivalent rent gained 2.7 percent on the year, adding 0.97 point to the CPI, up slightly from 2.6 percent (plus 0.92 point) in April. The uptrend reflects moves among many firms to raise wages at a faster pace than in recent years to secure workers.
The core-core CPI (excluding fresh food and energy) -- a key indicator of the underlying trend of inflation -- rose 3.9 percent on the year in May for the 14th straight rise. It was slightly below the median forecast of a 4.0 percent rise. It followed increases of 3.8 percent in April, 3.4 percent in March, 3.1 percent in February and 3.0 percent in January. With or without the direct impact of the sales tax increases in 2014 and in 1997, the 3.9 percent gain in May is the highest in 41 years, since the 4.2 percent rise in April 1982. This measure is not affected by fluctuations in energy prices but it has been on an uptrend in the face of markups in processed food and durable goods.
The total CPI gained 3.2 percent on year in May, marking the 21st straight year-over-year gain and coming in just under the median forecast of a 3.3 percent rise (forecasts ranged from 3.2 percent to 3.6 percent). It followed increases of 3.5 percent in April, 3.3 percent in March, 3.4 percent in February and 4.4 percent in January. The 4.4 percent increase in January is the largest in more than 41 years, since the 4.8 percent gain in June 1981.
Fresh food prices, a volatile factor, continued rising, up 4.3 percent on year in May, pushing up the overall index by 0.18 percentage point, but the pace of increase decelerated from a 4.7 percent rise and a 0.20-point contribution the previous month.
Food excluding perishables rose 8.9 percent on year (a 1.92-point contribution to the total CPI) in April, after rising the same rate in April. This category replaced energy as the largest contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points) and the gap between the two has widened further as energy prices began to fall.
Energy prices slumped 8.2 percent on year in May, pushing down the total index by 0.47 percentage points, after falling 2.6 percent (minus 0.14 point) in April, rising just 0.3 percent (plus 0.02 points) in March and 5.3 percent (plus 0.26 point) in February, easing further from increases over 20 percent seen earlier.
In the energy category, gasoline prices dipped 0.4 percent on the year, making zero contribution to the total CPI in May, after falling 2.6 percent (a negative 0.02-point contribution) in April. Electricity charges slumped 16.1 percent (minus 0.50 point) in April after slipping 7.9 percent (minus 0.24 point) in April. City gas prices rose 1.9 percent (plus 0.03 point), slowing further from a 6.2 percent rise (plus 0.11 point) the previous month.
The prices for household durable goods posted their 14th straight year-on-year increase, up 7.4 percent, and pushed up the CPI by 0.09 point in May after rising 12.8 percent (plus 0.15 point) in April.
Accommodations costs rose 11.5 percent from a year earlier with a positive 0.14-point contribution in May, accelerating from an 8.1 percent rise (plus 0.10 point) in April, as strong pent-up demand for spending on services outpaced the downward effect of subsidies. It followed no change in March and a 6.1 percent drop (minus 0.07 point) in February. The government began subsidizing domestic travel under a new nationwide discount program in October 2022. After a brief suspension during the yearend and new year holidays, it resumed the scheme on a smaller scale.
Market Consensus Before Announcement
Consumer prices in Tokyo, the leading indicator of the national average, is expected to decelerate in May to a 3.3 percent rise on year from 3.5 percent in April in total CPI and the core measure (excluding fresh food) as gasoline and utilities subsides pushed down energy costs. By contrast, the year-over-year rise in the core-core CPI (excluding fresh food and energy) is seen accelerating to 4.0 percent from 3.8 percent, staying at a 41-year high. Prices for processed food and durable goods continue rising further.
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.
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
Description
The CPI has been in the spotlight as Japan struggled to make its way out of deflation. It is now closely monitored because the recent spike in energy and commodity markets and supply chain constraints during the global pandemic boosted Japan’s inflation rate to the highest in over four decades in 2022.
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.
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.
