| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 3.3% | 3.2% to 3.4% | 3.3% | 3.3% |
| Ex-Fresh Food - Y/Y | 3.1% | 3.0% to 3.2% | 3.1% | 3.3% |
| Ex-Fresh Food & Energy - Y/Y | 4.4% | 4.3% to 4.4% | 4.3% | 4.2% |
Highlights
Consumer inflation in Japan moderated to 3.1 percent in July from 3.3 percent in June in the core measure (excluding fresh food prices) after electricity and natural gas suppliers trimmed prices for households amid falling energy import costs and the base effect of mobile phone price hikes a year earlier has waned, data from the Ministry of Internal Affairs and Communication released Friday showed.
But processed food prices remained more than 9 percent above year-earlier levels and the upward pressure on daily necessities continued, leaving the total CPI annual rate at 3.3 percent in July. Both telecommunications charges and hotel fees rose sharply while nominal wage hikes continued to push up service prices.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) picked up again to a 42-year high of 4.3 percent after easing to 4.2 percent in June from 4.3 percent in May, indicating that the effects of widespread retail price hikes are lingering. The year-over-year decline in corporate import costs that began in April is likely to ease consumer prices with a six-month delay.
In its quarterly Outlook Report for July, the Bank of Japan board revised up its forecast for consumer inflation for fiscal 2023 ending next March to 2.5 percent from 1.8 percent projected in April while predicting that inflation will lose some steam from 3.0 percent in fiscal 2022 and fail to be anchored around the bank's 2 percent target in a sustainable manner, averaging 1.9 percent (revised down from April's 2.0 percent) in fiscal 2024 and 1.6 percent (unchanged) in fiscal 2025.
The Econoday Consensus Divergence Index stood at plus 9, above zero, which indicates the Japanese economy is performing slightly better than expected. Excluding the impact of inflation, the index was at plus 16.
The national average core consumer price index (excluding fresh food) rose 3.1 percent from a year earlier in July, below the median economist forecast for a 3.3 percent rise (forecasts ranged from 3.0 percent to 3.2 percent). It is the 23rd straight year-over-year increase after rising 3.3 percent in June, 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 2.9 percent on the year in July, accelerating from 2.3 percent in June. Goods prices excluding fresh food gained 4.3 percent, easing from a 4.9 percent rise the previous month.
The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) rose 4.3 percent on the year in July, following increases of 4.2 percent in June, 4.3 percent in May, 4.1 percent in April, 3.8 percent in March and 3.5 percent in February. It is the 16th straight year-over-year increase and was below the median economist forecast for a 4.4 percent rise (forecasts ranged from 4.3 percent to 4.4 percent). The 4.3 percent rise in July is the largest in 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 23rd consecutive year-over-year increase, after rising 3.3 percent in June, 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 in line with the median forecast of a 3.3 percent rise (forecasts ranged from 3.2 percent to 3.4 percent). Fresh food prices, a volatile factor, rose 6.5 percent on year and pushed up the overall index by 0.26 percentage point after rising 3.8 percent (up 0.16 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.
But processed food prices remained more than 9 percent above year-earlier levels and the upward pressure on daily necessities continued, leaving the total CPI annual rate at 3.3 percent in July. Both telecommunications charges and hotel fees rose sharply while nominal wage hikes continued to push up service prices.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) picked up again to a 42-year high of 4.3 percent after easing to 4.2 percent in June from 4.3 percent in May, indicating that the effects of widespread retail price hikes are lingering. The year-over-year decline in corporate import costs that began in April is likely to ease consumer prices with a six-month delay.
In its quarterly Outlook Report for July, the Bank of Japan board revised up its forecast for consumer inflation for fiscal 2023 ending next March to 2.5 percent from 1.8 percent projected in April while predicting that inflation will lose some steam from 3.0 percent in fiscal 2022 and fail to be anchored around the bank's 2 percent target in a sustainable manner, averaging 1.9 percent (revised down from April's 2.0 percent) in fiscal 2024 and 1.6 percent (unchanged) in fiscal 2025.
The Econoday Consensus Divergence Index stood at plus 9, above zero, which indicates the Japanese economy is performing slightly better than expected. Excluding the impact of inflation, the index was at plus 16.
The national average core consumer price index (excluding fresh food) rose 3.1 percent from a year earlier in July, below the median economist forecast for a 3.3 percent rise (forecasts ranged from 3.0 percent to 3.2 percent). It is the 23rd straight year-over-year increase after rising 3.3 percent in June, 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 2.9 percent on the year in July, accelerating from 2.3 percent in June. Goods prices excluding fresh food gained 4.3 percent, easing from a 4.9 percent rise the previous month.
The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) rose 4.3 percent on the year in July, following increases of 4.2 percent in June, 4.3 percent in May, 4.1 percent in April, 3.8 percent in March and 3.5 percent in February. It is the 16th straight year-over-year increase and was below the median economist forecast for a 4.4 percent rise (forecasts ranged from 4.3 percent to 4.4 percent). The 4.3 percent rise in July is the largest in 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 23rd consecutive year-over-year increase, after rising 3.3 percent in June, 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 in line with the median forecast of a 3.3 percent rise (forecasts ranged from 3.2 percent to 3.4 percent). Fresh food prices, a volatile factor, rose 6.5 percent on year and pushed up the overall index by 0.26 percentage point after rising 3.8 percent (up 0.16 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.
Market Consensus Before Announcement
Consumer inflation in Japan is forecast to be steady at 3.3 percent in July in the total CPI and ease to 3.1 percent in the core measure (excluding fresh food prices) from June's 3.3 percent after markups by power companies led to a smaller drop in overall energy costs in June and processed food prices remained over 9 percent above year-earlier levels. Underlying inflation measured by the core-core CPI (excluding fresh food and energy) is expected to pick up again to a 42-year high of 4.4 percent after easing to 4.2 percent in June from 4.3 percent in May, indicating that the effects of widespread retail price hikes are lingering. The year-over-year decline in corporate import costs that began in April is likely to affect consumer prices with a six-month delay.
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.
