| Previous | Consensus | Consensus Range | Actual | |
|---|---|---|---|---|
| CPI - M/M | 0.0% | |||
| CPI - Y/Y | 3.2% | 3.3% | 3.1% to 3.4% | 3.3% |
| Ex-Fresh Food - M/M | 0.0% | |||
| Ex-Fresh Food - Y/Y | 3.2% | 3.3% | 3.2% to 3.3% | 3.3% |
| Ex-Fresh Food & Energy - M/M | 0.3% | |||
| Ex-Fresh Food & Energy - Y/Y | 4.3% | 4.2% | 3.8% to 4.3% | 4.2% |
Highlights
Consumer inflation in Japan was relatively stable just above 3 percent in June, with both the total CPI and the core measure (excluding fresh food prices) ticking up to 3.3 percent from 3.2 percent in May as markups by power companies led to a smaller drop in overall energy costs and processed food prices remained over 9 percent above year-earlier levels, data from the Ministry of Internal Affairs and Communication released Friday showed.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) slowed slightly to 4.2 percent from a 41-year high of 4.3 percent in May, indicating that widespread retail price hikes for food and durable goods may be peaking soon, as seen in a third straight year-over-year drop in producer import costs in June.
At its July 27-28 meeting, the Bank of Japan's policy board is expected to vote unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and relatively large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
At the same time, the board will continue debating the costs and benefits of the yield curve control policy framework that was adopted in September 2016 and the negative overnight interest rate target introduced in January 2016.
The Econoday Consensus Divergence Index stands at minus 24, which indicates the Japanese economy is performing worse than expected after outperforming several weeks earlier. Excluding the impact of inflation, the index is also at minus 24.
The national average core consumer price index (excluding fresh food) rose 3.3 percent from a year earlier in June in line with the median economist forecast for a 3.3 percent rise. It is the 22nd straight year-over-year increase after rising 3.2 percent in May, 3.4 percent in April, 3.1 percent in both March and February (the first deceleration in 13 months) and 4.2 percent in January.
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.
Service prices in Japan have moved up in recent months as more firms are raising wages to secure workers, although the average cash earnings per employee are falling in real terms. Service prices excluding owners' equivalent rent rose 2.3 percent on the year in June, slightly slower than a 2.5 percent increase in May. Goods prices excluding fresh food gained 4.9 percent, up from a 4.6 percent rise the previous month after easing in recent months.
Bank of Japan's policy board has projected that the increase in the core CPI would slow to 1.8 percent in fiscal 2023 from 3.0 percent in fiscal 2022 that ended in March as the base effects of last year's spike in energy and commodities prices fade. For fiscal 2024, the board expects the core reading to rise 2.0 percent, noting the impact of government subsidies to cap retail gasoline and utility prices will wane. But its forecast for 2025 is a lower 1.6 percent, indicating the banks' battle to reflate the economy may be prolonged.
In its quarterly Outlook Report due July 28, the board is expected to revise up its median forecast for consumer inflation to above 2 percent in the core CPI for fiscal 2023 from 1.8 percent projected in April while it is likely to make little change to its projections of 2.0 percent for fiscal 2024 and 1.6 percent for fiscal 2025 amid uncertainty over global growth and domestic wage hikes in the next fiscal year starting in April 2024.
The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) eased slightly to 4.2 percent on year in June after hitting a fresh 41-year high of 4.3 percent in May and rising 4.1 percent in April, 3.8 percent in March and 3.5 percent in February. It is the 15th straight year-over-year increase and in line with the median economist forecast for a 4.2 percent rise. The 4.3 percent rise in May was the largest in nearly 42 years, since the 4.5 percent increase June 1981. This narrow measure is without the effects of energy cost fluctuations. It has been pushed up by markups in various items including processed food.
The total CPI rose 3.3 percent on year in June, marking the 22nd consecutive year-over-year increase, after rising 3.2 percent in May, 3.5 percent in April, 3.2 percent in March, 3.3 percent in February and 4.3 percent in January. It was also in line with the median forecast of a 3.3 percent rise. Fresh food prices, a volatile factor, rose 3.8 percent on year and pushed up the overall index by 0.16 percentage point after rising 5.2 percent (up 0.22 point) the previous month. The 4.3 percent increase January's total CPI is a 41-year high, the largest since the 4.3 percent rise in December 1981.
Among key components of the CPI basket of goods and services, energy prices dropped 6.6 percent on year in June, pushing down the CPI by 0.56 percentage point, after slumping 8.2 percent with a negative 0.69-piont contribution in May, falling 4.4 percent (minus 0.37 point) in April, 3.8 percent (minus 0.32 point) in March and dipping 0.7 percent (minus 0.06 point) in February, which was the first drop since March 2021.
The government has contained retail gasoline prices by providing subsidies to refineries. It also began providing subsidies for electricity and natural gas in January (reflected in February bills onward) and the program will continue through September, mitigating the impact of the latest markups by power companies that took effect in June.
Gasoline prices fell 1.6 percent on year in June, making a negative 0.04 percentage point contribution to overall consumer prices, after falling 1.7 percent with a negative 0.04 percentage point contribution in May.
Electricity charges dropped 12.4 percent (minus 0.49 point contribution) in June after falling 17.1 percent (minus 0.69 point) in May, 9.3 percent (minus 0.36 point) in April, 8.5 percent (minus 0.32 point) in March and 5.5 percent (minus 0.21 point) in February, the first drop since July 2021, after rising 20.2 percent (plus 0.75 point) in January. The prices for"city gas" (natural gas supplied through pipelines) posted their first year-over-year decline in 21 months, down 2.8 percent with a negative 0.03-point contribution, after rising 1.4 percent (plus 0.02 point) in May, 5.0 percent (plus 0.06 point) in April, 10.0 percent (plus 0.11 point) in March, 16.6 percent (plus 0.17 point) in February and 35.2 percent (plus 0.35 point) in January.
The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 24th straight year-over-year increase, up 9.2 percent (plus 2.07 points) after rising 9.2 percent (plus 2.07 points) in May. It remains the largest increase in more than 46 years, since the 9.9 percent surge in October 1975. Sharp price hikes were seen among many items including prepared food (fried chicken), cooking oil, eating out (hamburgers), snacks (ice cream) and soft drinks.
The prices for household durable goods marked their 15th consecutive gain from year-earlier levels. The pace of increase decelerated to 6.7 percent (plus 0.10-point contribution) in June from 9.0 percent (+0.13 point) in May and six months of double-digit percentage gains through February. Producer import prices fell on the year for the third straight month in June as global energy and commodities markets have eased and the yen's weakness, which has eroded Japan's purchasing power, is not as serious as in September and October last year.
Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 5.5 percent in June, raising the CPI's year-over-year increase by 0.05 percentage point, thanks to solid reopening demand for traveling and despite slight downward pressure from travel subsidies. Hotel fees rose 9.2 percent on the year in May, with a positive 0.09-point contribution.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) slowed slightly to 4.2 percent from a 41-year high of 4.3 percent in May, indicating that widespread retail price hikes for food and durable goods may be peaking soon, as seen in a third straight year-over-year drop in producer import costs in June.
At its July 27-28 meeting, the Bank of Japan's policy board is expected to vote unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and relatively large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
At the same time, the board will continue debating the costs and benefits of the yield curve control policy framework that was adopted in September 2016 and the negative overnight interest rate target introduced in January 2016.
The Econoday Consensus Divergence Index stands at minus 24, which indicates the Japanese economy is performing worse than expected after outperforming several weeks earlier. Excluding the impact of inflation, the index is also at minus 24.
The national average core consumer price index (excluding fresh food) rose 3.3 percent from a year earlier in June in line with the median economist forecast for a 3.3 percent rise. It is the 22nd straight year-over-year increase after rising 3.2 percent in May, 3.4 percent in April, 3.1 percent in both March and February (the first deceleration in 13 months) and 4.2 percent in January.
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.
Service prices in Japan have moved up in recent months as more firms are raising wages to secure workers, although the average cash earnings per employee are falling in real terms. Service prices excluding owners' equivalent rent rose 2.3 percent on the year in June, slightly slower than a 2.5 percent increase in May. Goods prices excluding fresh food gained 4.9 percent, up from a 4.6 percent rise the previous month after easing in recent months.
Bank of Japan's policy board has projected that the increase in the core CPI would slow to 1.8 percent in fiscal 2023 from 3.0 percent in fiscal 2022 that ended in March as the base effects of last year's spike in energy and commodities prices fade. For fiscal 2024, the board expects the core reading to rise 2.0 percent, noting the impact of government subsidies to cap retail gasoline and utility prices will wane. But its forecast for 2025 is a lower 1.6 percent, indicating the banks' battle to reflate the economy may be prolonged.
In its quarterly Outlook Report due July 28, the board is expected to revise up its median forecast for consumer inflation to above 2 percent in the core CPI for fiscal 2023 from 1.8 percent projected in April while it is likely to make little change to its projections of 2.0 percent for fiscal 2024 and 1.6 percent for fiscal 2025 amid uncertainty over global growth and domestic wage hikes in the next fiscal year starting in April 2024.
The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) eased slightly to 4.2 percent on year in June after hitting a fresh 41-year high of 4.3 percent in May and rising 4.1 percent in April, 3.8 percent in March and 3.5 percent in February. It is the 15th straight year-over-year increase and in line with the median economist forecast for a 4.2 percent rise. The 4.3 percent rise in May was the largest in nearly 42 years, since the 4.5 percent increase June 1981. This narrow measure is without the effects of energy cost fluctuations. It has been pushed up by markups in various items including processed food.
The total CPI rose 3.3 percent on year in June, marking the 22nd consecutive year-over-year increase, after rising 3.2 percent in May, 3.5 percent in April, 3.2 percent in March, 3.3 percent in February and 4.3 percent in January. It was also in line with the median forecast of a 3.3 percent rise. Fresh food prices, a volatile factor, rose 3.8 percent on year and pushed up the overall index by 0.16 percentage point after rising 5.2 percent (up 0.22 point) the previous month. The 4.3 percent increase January's total CPI is a 41-year high, the largest since the 4.3 percent rise in December 1981.
Among key components of the CPI basket of goods and services, energy prices dropped 6.6 percent on year in June, pushing down the CPI by 0.56 percentage point, after slumping 8.2 percent with a negative 0.69-piont contribution in May, falling 4.4 percent (minus 0.37 point) in April, 3.8 percent (minus 0.32 point) in March and dipping 0.7 percent (minus 0.06 point) in February, which was the first drop since March 2021.
The government has contained retail gasoline prices by providing subsidies to refineries. It also began providing subsidies for electricity and natural gas in January (reflected in February bills onward) and the program will continue through September, mitigating the impact of the latest markups by power companies that took effect in June.
Gasoline prices fell 1.6 percent on year in June, making a negative 0.04 percentage point contribution to overall consumer prices, after falling 1.7 percent with a negative 0.04 percentage point contribution in May.
Electricity charges dropped 12.4 percent (minus 0.49 point contribution) in June after falling 17.1 percent (minus 0.69 point) in May, 9.3 percent (minus 0.36 point) in April, 8.5 percent (minus 0.32 point) in March and 5.5 percent (minus 0.21 point) in February, the first drop since July 2021, after rising 20.2 percent (plus 0.75 point) in January. The prices for"city gas" (natural gas supplied through pipelines) posted their first year-over-year decline in 21 months, down 2.8 percent with a negative 0.03-point contribution, after rising 1.4 percent (plus 0.02 point) in May, 5.0 percent (plus 0.06 point) in April, 10.0 percent (plus 0.11 point) in March, 16.6 percent (plus 0.17 point) in February and 35.2 percent (plus 0.35 point) in January.
The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 24th straight year-over-year increase, up 9.2 percent (plus 2.07 points) after rising 9.2 percent (plus 2.07 points) in May. It remains the largest increase in more than 46 years, since the 9.9 percent surge in October 1975. Sharp price hikes were seen among many items including prepared food (fried chicken), cooking oil, eating out (hamburgers), snacks (ice cream) and soft drinks.
The prices for household durable goods marked their 15th consecutive gain from year-earlier levels. The pace of increase decelerated to 6.7 percent (plus 0.10-point contribution) in June from 9.0 percent (+0.13 point) in May and six months of double-digit percentage gains through February. Producer import prices fell on the year for the third straight month in June as global energy and commodities markets have eased and the yen's weakness, which has eroded Japan's purchasing power, is not as serious as in September and October last year.
Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 5.5 percent in June, raising the CPI's year-over-year increase by 0.05 percentage point, thanks to solid reopening demand for traveling and despite slight downward pressure from travel subsidies. Hotel fees rose 9.2 percent on the year in May, with a positive 0.09-point contribution.
Market Consensus Before Announcement
Consumer inflation in Japan is expected to be stable just above 3 percent in June, with both the total CPI and the core measure (excluding fresh food prices) seen ticking up to 3.3 percent from 3.2 percent in May as markups by power companies led to a smaller drop in overall energy costs. Underlying inflation measured by the core-core CPI (excluding fresh food and energy) is forecast to ease slightly to 4.2 percent from a 41-year high of 4.3 percent in May, indicating that widespread retail price hikes for food and durable goods may be peaking soon, as seen in drops in producer import costs in recent months.
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.
