| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 3.0% | 2.8% to 3.1% | 3.0% | 3.2% |
| Ex-Fresh Food - Y/Y | 2.7% | 2.6% to 2.9% | 2.8% | 3.1% |
| Ex-Fresh Food & Energy - Y/Y | 4.1% | 4.1% to 4.2% | 4.2% | 4.3% |
Highlights
Consumer inflation in Japan eased in all three key measures in September as energy subsidies continued to push down electricity and natural gas utility costs and markups in processed food prices are showing signs of peaking, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core measure (excluding fresh food prices), which is closely watched by Bank of Japan policymakers, indicated a clear slowdown, with its year-over-year rise declining to a 13-month low of 2.8 percent in September from 3.1 percent in August. The prices for food excluding perishables were now 8.8 percent above year-earlier levels, down from 9.2 percent in August. Energy prices slumped 11.7 percent on year after falling 9.8 percent the previous month.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) moderated to 4.2 percent from a 42-year high of 4.3 percent seen in August, July and May while the total CPI's annual rate also eased to a 12-month low of 3.0 percent from 3.2 percent.
The BoJ will update its medium-term economic projections and risk analysis in its quarterly Outlook Report due on Oct. 31 after its two-day policy meeting. The BoJ board may revise up its median forecast for consumer inflation for fiscal 2023 ending next March closer to 3 percent from 2.5 percent projected in July and 1.8 percent in April while making little change to 1.9 percent forecast for fiscal 2024 and 1.6 percent for fiscal 2025.
Econoday's Relative Performance Index (RPI) stood at plus 36, comfortably above zero, which indicates the Japanese economy is performing better than expected after outperforming with a smaller margin recently. Excluding the impact of inflation, the RPI was at plus 51.
The national average core consumer price index (excluding fresh food) rose 2.8 percent from a year earlier in September, compared to the median economist forecast for a 2.7 percent rise (forecasts ranged from 2.6 percent to 2.9 percent). It is the 25th straight year-over-year increase after rising 3.1 percent in both August and July and marked the lowest since 2.8 percent in August 2022. The slowdown to 3.3 percent in February this year was the first deceleration in 13 months after climbing 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 been on the rise 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 2.9 percent on the year in September, little changed from 3.0 percent in August and 2.9 percent in July. Goods prices excluding fresh food gained 3.5 percent, showing a clear slowdown from 4.1 percent the previous month.
BoJ board members are looking for a clearer sign that wages will continue rising substantially before considering scaling back years of monetary easing.
The underlying inflation rate -- measured by the core-core CPI (excluding fresh food and energy) -- rose 4.2 percent on the year in September, following increases of 4.3 percent in both August and July, 4.2 percent in June, 4.3 percent in May and 4.1 percent in April. It is the 18th straight year-over-year increase and was just above the median economist forecast for a 4.1 percent rise (forecasts ranged from 4.1 percent to 4.2 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 3.0 percent on year in September for the 25th consecutive year-over-year increase but it was the slowest since 3.0 percent in September 2022 following increases of 3.2 percent in August and 3.3 percent in both July and June. It was in line with the median forecast of a 3.0 percent rise (forecasts ranged from 2.8 percent to 3.1 percent). Fresh food prices, a volatile factor, rose 9.6 percent on year and pushed up the overall index by 0.40 percentage point after rising 5.3 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.
The core measure (excluding fresh food prices), which is closely watched by Bank of Japan policymakers, indicated a clear slowdown, with its year-over-year rise declining to a 13-month low of 2.8 percent in September from 3.1 percent in August. The prices for food excluding perishables were now 8.8 percent above year-earlier levels, down from 9.2 percent in August. Energy prices slumped 11.7 percent on year after falling 9.8 percent the previous month.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) moderated to 4.2 percent from a 42-year high of 4.3 percent seen in August, July and May while the total CPI's annual rate also eased to a 12-month low of 3.0 percent from 3.2 percent.
The BoJ will update its medium-term economic projections and risk analysis in its quarterly Outlook Report due on Oct. 31 after its two-day policy meeting. The BoJ board may revise up its median forecast for consumer inflation for fiscal 2023 ending next March closer to 3 percent from 2.5 percent projected in July and 1.8 percent in April while making little change to 1.9 percent forecast for fiscal 2024 and 1.6 percent for fiscal 2025.
Econoday's Relative Performance Index (RPI) stood at plus 36, comfortably above zero, which indicates the Japanese economy is performing better than expected after outperforming with a smaller margin recently. Excluding the impact of inflation, the RPI was at plus 51.
The national average core consumer price index (excluding fresh food) rose 2.8 percent from a year earlier in September, compared to the median economist forecast for a 2.7 percent rise (forecasts ranged from 2.6 percent to 2.9 percent). It is the 25th straight year-over-year increase after rising 3.1 percent in both August and July and marked the lowest since 2.8 percent in August 2022. The slowdown to 3.3 percent in February this year was the first deceleration in 13 months after climbing 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 been on the rise 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 2.9 percent on the year in September, little changed from 3.0 percent in August and 2.9 percent in July. Goods prices excluding fresh food gained 3.5 percent, showing a clear slowdown from 4.1 percent the previous month.
BoJ board members are looking for a clearer sign that wages will continue rising substantially before considering scaling back years of monetary easing.
The underlying inflation rate -- measured by the core-core CPI (excluding fresh food and energy) -- rose 4.2 percent on the year in September, following increases of 4.3 percent in both August and July, 4.2 percent in June, 4.3 percent in May and 4.1 percent in April. It is the 18th straight year-over-year increase and was just above the median economist forecast for a 4.1 percent rise (forecasts ranged from 4.1 percent to 4.2 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 3.0 percent on year in September for the 25th consecutive year-over-year increase but it was the slowest since 3.0 percent in September 2022 following increases of 3.2 percent in August and 3.3 percent in both July and June. It was in line with the median forecast of a 3.0 percent rise (forecasts ranged from 2.8 percent to 3.1 percent). Fresh food prices, a volatile factor, rose 9.6 percent on year and pushed up the overall index by 0.40 percentage point after rising 5.3 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.
Market Consensus Before Announcement
Consumer inflation in Japan is forecast to have eased in all three key measures as energy subsidies continued to push down electricity and natural gas utility costs while markups in processed food prices appeared to be peaking. The core measure (excluding fresh food prices) is seen up 2.7 percent on the year, led by elevated prices for processed food and rising service costs, but it would be slower than a 3.1 percent rise in August. Underlying inflation measured by the core-core CPI (excluding fresh food and energy) is forecast at 4.1 percent, down from a 42-year high of 4.3 percent recorded in August, July and May. The year-over-year increase in the total CPI is also expected to have eased to 3.0 percent in September from 3.2 percent in August.
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.
