| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 3.1% | 3.0% to 3.1% | 3.2% | 3.3% |
| Ex-Fresh Food - Y/Y | 3.0% | 2.9% to 3.1% | 3.1% | 3.1% |
| Ex-Fresh Food & Energy - Y/Y | 4.3% | 4.3% to 4.4% | 4.3% | 4.3% |
Highlights
Consumer inflation in Japan was largely steady in August as processed food prices remained elevated and higher costs for gasoline and hotels offset sharp drops in subsidized utility prices, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core measure (excluding fresh food prices) rose 3.1 percent on the year after rising at the same pace in July as food costs minus perishables stayed more than 9 percent above year-earlier levels. Service price gains continued to accelerate as many firms have raised wages to secure workers this year while the increase in goods prices moderated.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) stayed at a 42-year high of 4.3 percent but the year-over-year increase in the total CPI eased to 3.2 percent in August from 3.3 percent in July on a smaller rise in fresh food prices.
In its quarterly Outlook Report for July, the BOJ 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 in fiscal 2044 and 1.6 percent in fiscal 2015.
Econoday's Relative Performance Index stood at minus 44, far below zero, which indicates the Japanese economy is performing much worse than expected. Excluding the impact of inflation, the RPI was at minus 70.
The national average core consumer price index (excluding fresh food) rose 3.1 percent from a year earlier in August, compared to the median economist forecast for a 3.0 percent rise (forecasts ranged from 2.9 percent to 3.1 percent). It is the 24th straight year-over-year increase after rising 3.1 percent in July, 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 still below year-earlier levels after adjusted for inflation. Service prices excluding owners' equivalent rent rose 3.0 percent on the year in August, accelerating further from 2.9 percent in July. Goods prices excluding fresh food gained 4.1 percent, easing from a 4.3 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 August, following increases of 4.3 percent in July, 4.2 percent in June, 4.3 percent in May and 4.1 percent in April. It is the 17th straight year-over-year increase and was in line with the median economist forecast for a 4.3 percent rise (forecasts ranged from 4.3 percent to 4.4 percent). The 4.3 percent rise 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 3.2 percent on year in July, marking the 24th consecutive year-over-year increase, after rising 3.3 percent in July and June, 3.2 percent in May and 3.5 percent in April. It was slightly above the median forecast of a 3.1 percent rise (forecasts ranged from 3.0 percent to 3.1 percent). Fresh food prices, a volatile factor, rose 5.3 percent on year and pushed up the overall index by 0.22 percentage point after rising 6.5 percent (up 0.26 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 slumped 9.8 percent on year in August, pushing down the CPI by 0.84 percentage point, after falling 8.7 percent with a negative 0.74-poing contribution. The 0.7 percent drop (minus 0.06 point) in February was the first drop since March 2021.
Gasoline prices rose 7.5 percent on the year, adding 0.16 percentage point to the CPI in August, after posting their first year-over-year rise in six months in July with a 1.1 percent gain (plus 0.02-point contribution) and a 1.6 percent drop with a negative 0.04-point contribution in June. Retail gasoline prices hit record highs in August and early September as the government had scaled back subsides to refineries and the yen remains weak, keeping import costs high.
Electricity charges plunged 20.9 percent on the year (minus 0.85-point contribution) in August after falling 16.6 percent (minus 0.67 point) in July. In February, they marked the first drop since July 2021. The government began providing utilities subsidies in January (reflected in February bills onward). The program was originally scheduled to end in September but in the face of the recent rise in energy markets, the government has decided to extend it throughout the year.
The prices for"city gas" (natural gas supplied through pipelines) dipped 13.9 percent with a negative 0.16-point contribution in August, after falling 9.0 percent (minus 0.10-point contribution) in July and posting their first year-over-year decline in 21 months in June, down 2.8 percent (minus 0.03 point).
The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 26th straight year-over-year increase, up 9.2 percent (plus 2.08 points) after rising 9.2 percent (plus 2.08 points) in July. 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), eating out (hamburgers), snacks (ice cream) and soft drinks, as seen in recent months.
The prices for household durable goods marked their 17th consecutive gain but the pace of increase decelerated further to 3.0 percent (plus 0.04-point contribution) in August from 6.0 percent (plus 0.09 point) in July and 6.7 percent (plus 0.10 point) in June and six months of double-digit percentage gains through February. Many people had purchased furniture and appliances in the early phase of the pandemic when they spent more time at home.
Mobile phone communications fees rose 10.2 percent (plus 0.13 point) in August after accelerating to a 10.2 percent increase (positive 0.13 point) in July from a 2.9 percent gain (0.04 point) in June.
Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 18.1 percent on the year (plus 0.19-point contribution) in August after a 15.1 percent rise in July (0.15 point). Pent-up demand for traveling remains strong and the number of visitors from overseas has been rising, offsetting the slight downward pressure from travel subsidies.
The core measure (excluding fresh food prices) rose 3.1 percent on the year after rising at the same pace in July as food costs minus perishables stayed more than 9 percent above year-earlier levels. Service price gains continued to accelerate as many firms have raised wages to secure workers this year while the increase in goods prices moderated.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) stayed at a 42-year high of 4.3 percent but the year-over-year increase in the total CPI eased to 3.2 percent in August from 3.3 percent in July on a smaller rise in fresh food prices.
In its quarterly Outlook Report for July, the BOJ 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 in fiscal 2044 and 1.6 percent in fiscal 2015.
Econoday's Relative Performance Index stood at minus 44, far below zero, which indicates the Japanese economy is performing much worse than expected. Excluding the impact of inflation, the RPI was at minus 70.
The national average core consumer price index (excluding fresh food) rose 3.1 percent from a year earlier in August, compared to the median economist forecast for a 3.0 percent rise (forecasts ranged from 2.9 percent to 3.1 percent). It is the 24th straight year-over-year increase after rising 3.1 percent in July, 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 still below year-earlier levels after adjusted for inflation. Service prices excluding owners' equivalent rent rose 3.0 percent on the year in August, accelerating further from 2.9 percent in July. Goods prices excluding fresh food gained 4.1 percent, easing from a 4.3 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 August, following increases of 4.3 percent in July, 4.2 percent in June, 4.3 percent in May and 4.1 percent in April. It is the 17th straight year-over-year increase and was in line with the median economist forecast for a 4.3 percent rise (forecasts ranged from 4.3 percent to 4.4 percent). The 4.3 percent rise 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 3.2 percent on year in July, marking the 24th consecutive year-over-year increase, after rising 3.3 percent in July and June, 3.2 percent in May and 3.5 percent in April. It was slightly above the median forecast of a 3.1 percent rise (forecasts ranged from 3.0 percent to 3.1 percent). Fresh food prices, a volatile factor, rose 5.3 percent on year and pushed up the overall index by 0.22 percentage point after rising 6.5 percent (up 0.26 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 slumped 9.8 percent on year in August, pushing down the CPI by 0.84 percentage point, after falling 8.7 percent with a negative 0.74-poing contribution. The 0.7 percent drop (minus 0.06 point) in February was the first drop since March 2021.
Gasoline prices rose 7.5 percent on the year, adding 0.16 percentage point to the CPI in August, after posting their first year-over-year rise in six months in July with a 1.1 percent gain (plus 0.02-point contribution) and a 1.6 percent drop with a negative 0.04-point contribution in June. Retail gasoline prices hit record highs in August and early September as the government had scaled back subsides to refineries and the yen remains weak, keeping import costs high.
Electricity charges plunged 20.9 percent on the year (minus 0.85-point contribution) in August after falling 16.6 percent (minus 0.67 point) in July. In February, they marked the first drop since July 2021. The government began providing utilities subsidies in January (reflected in February bills onward). The program was originally scheduled to end in September but in the face of the recent rise in energy markets, the government has decided to extend it throughout the year.
The prices for"city gas" (natural gas supplied through pipelines) dipped 13.9 percent with a negative 0.16-point contribution in August, after falling 9.0 percent (minus 0.10-point contribution) in July and posting their first year-over-year decline in 21 months in June, down 2.8 percent (minus 0.03 point).
The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 26th straight year-over-year increase, up 9.2 percent (plus 2.08 points) after rising 9.2 percent (plus 2.08 points) in July. 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), eating out (hamburgers), snacks (ice cream) and soft drinks, as seen in recent months.
The prices for household durable goods marked their 17th consecutive gain but the pace of increase decelerated further to 3.0 percent (plus 0.04-point contribution) in August from 6.0 percent (plus 0.09 point) in July and 6.7 percent (plus 0.10 point) in June and six months of double-digit percentage gains through February. Many people had purchased furniture and appliances in the early phase of the pandemic when they spent more time at home.
Mobile phone communications fees rose 10.2 percent (plus 0.13 point) in August after accelerating to a 10.2 percent increase (positive 0.13 point) in July from a 2.9 percent gain (0.04 point) in June.
Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 18.1 percent on the year (plus 0.19-point contribution) in August after a 15.1 percent rise in July (0.15 point). Pent-up demand for traveling remains strong and the number of visitors from overseas has been rising, offsetting the slight downward pressure from travel subsidies.
Market Consensus Before Announcement
Consumer inflation in Japan is forecast to have moderated slightly to 3.0 percent in August from 3.1 percent in July in the core measure (excluding fresh food prices) on recent markdowns in utilities but service prices remained on an uptrend as many firms are raising wages to secure workers. The year-over-year increase in the total CPI is also expected to have eased to 3.1 percent in August from 3.3 percent in July. Underlying inflation measured by the core-core CPI (excluding fresh food and energy) is forecast to stay at a 42-year high of 4.3 percent.
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.
