| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 3.4% | 3.2% to 3.7% | 3.3% | 3.0% |
| Ex-Fresh Food - Y/Y | 3.0% | 2.9% to 3.2% | 2.9% | 2.8% |
| Ex-Fresh Food & Energy - Y/Y | 4.1% | 4.0% to 4.1% | 4.0% | 4.2% |
Highlights
Consumer inflation in Japan picked up slightly in two of the three key measures in October as reduced subsidies for electricity and natural gas utilities slowed the sharp drop in overall energy costs and hotel costs jumped on pent-up demand, more than offsetting the effects of smaller processed food markups, 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, rose by a slightly lower-than-expected 2.9 percent on year, led by peaking but still elevated prices for processed food and rising service costs, after easing to a 13-month low of 2.8 percent in September from 3.1 percent in August. Energy prices slumped 8.7 percent on year, with the pace of decline decelerating from 11.7 percent in September. The prices for food excluding perishables were 7.6 percent above year-earlier levels, slowing from 8.8 percent in September.
The year-over-year increase in the total CPI also accelerated to 3.3 percent, just under consensus, after slowing to 3.0 percent in September from 3.2 percent in August. Service prices have been rising steadily as many firms have raised wages to secure workers. Pent-up demand for traveling among Japanese and resumed group tours from China boosted hotel fees, helping push up the inflation rate.
By contrast, underlying inflation measured by the core-core CPI (excluding fresh food and energy) moderated further to a seven-month low of 4.0 percent, just below the median forecast, from 4.2 percent in September and a 42-year high of 4.3 percent recorded in August, July and May.
In its quarterly Outlook Report for October, the Bank of Japan board revised up its core CPI forecast for fiscal 2023 ending next March further to 2.8 percent from 2.5 percent forecast in July, and jacked up its projection for fiscal 2024 to 2.8 percent from 1.9 percent. The board's median forecast for fiscal 2025 is 1.7 percent, revised up slightly from 1.6 percent, but that would be still below its 2 percent inflation target as the pass-through impact of high import costs is set to wane.
Econoday's Relative Performance Index (RPI) stood at minus 25, below zero, which indicates the Japanese economy is performing worse than expected after underperforming with a smaller margin earlier. Excluding the impact of inflation, the RPI was at minus 10.
The national average core consumer price index (excluding fresh food) rose 2.9 percent from a year earlier in October, just below the median economist forecast of a 3.0 percent rise (forecasts ranged from 2.9 percent to 3.2 percent). It is the 26th straight year-over-year increase after rising 2.8 percent in September (the slowest since 2.8 percent in August 2022), 3.1 percent in both August and July and 3.3 percent in June. The slowdown to 3.3 percent in February was the first deceleration in 13 months after rising to 4.2 percent in January from 4.0 percent the previous month.
The 4.2 percent rise in January was 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 real wages are still nearly 3 percent below year-earlier levels. Service prices excluding owners' equivalent rent rose 3.1 percent on the year in October, after rising 2.9 percent in September and 3.0 percent in August. Goods prices excluding fresh food gained 3.6 percent, slowing from 3.5 percent in September and 4.1 percent in August.
The underlying inflation rate -- measured by the core-core CPI (excluding fresh food and energy) -- rose 4.0 percent on the year in October, following increases of 4.2 percent in September, 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 19th straight year-over-year increase but was the slowest since the 3.8 percent gain in March 2023 and just below the median economist forecast of a 4.1 percent rise (forecasts ranged from 4.0 percent to 4.1 percent). The 4.3 percent rise was 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 October for the 26th consecutive year-over-year increase following increases of 3.0 percent in September (the slowest since 3.0 percent in September 2022), 3.2 percent in August and 3.3 percent in both July and June. It was also just under the median forecast of a 3.4 percent rise (forecasts ranged from 3.2 percent to 3.7 percent gains). Fresh food prices, a volatile factor, surged 14.1 percent on year and pushed up the overall index by 0.59 percentage point after rising 9.6 percent (up 0.40 point) the previous month. The 4.3 percent increase January's total CPI was 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 dipped 8.7 percent on year in October, pushing down the CPI by 0.75 percentage point, after falling 11.7 percent with a negative 1.00-poing contribution in September. The 0.7 percent drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
Gasoline prices rose 5.0 percent on the year, adding 0.11 percentage point to the CPI in October, after rising 8.7 percent (a positive 0.19-point contribution) in September and posting their first year-over-year rise in six months in July with a 1.1 percent gain (plus 0.02 point). Retail gasoline prices hit record highs from late August to early September.
Electricity charges fell 16.8 percent on year (a negative 0.69-point contribution) in October after slumping 24.6 percent (minus 1.01 points) in September. In February 2023, 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 was extended until the end of 2023.
The prices for natural gas supplied to homes slipped 13.8 percent with a negative 0.16-point contribution in October, after falling 17.5 percent (minus 0.20 point) in September 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 28th straight year-over-year increase but the pace slowed to 7.6 percent (plus 1.74 points) in October from 8.8 percent (plus 2.01 points) in September and 9.2 percent (plus 2.08 points) in August and July, which was 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 (curry), eating out (Korean barbecue), snacks including ice cream (the heat wave lingered) and soft drinks, as seen in recent months.
The prices for household durable goods marked their 19th consecutive gain in October. The pace of increase accelerated to 3.2 percent (plus 0.05-point contribution) after decelerating to 1.5 percent (plus 0.02 point) in September from 3.0 percent (plus 0.04 point) in August, 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.
Accommodations, which have a relatively small weight in the CPI basket of goods and services, jumped 42.6 percent on year (plus 0.35-point contribution) in October after rising 17.9 percent (plus 0.17-point contribution) in September, 18.1 percent (plus 0.19 point) in August and 15.1 percent (0.15 point) in July. People have been traveling more freely since the Japanese government widely eased Covid public health restrictions in May. The number of visitors from other countries has also recovered to pre-pandemic levels.
The core measure (excluding fresh food prices), which is closely watched by Bank of Japan policymakers, rose by a slightly lower-than-expected 2.9 percent on year, led by peaking but still elevated prices for processed food and rising service costs, after easing to a 13-month low of 2.8 percent in September from 3.1 percent in August. Energy prices slumped 8.7 percent on year, with the pace of decline decelerating from 11.7 percent in September. The prices for food excluding perishables were 7.6 percent above year-earlier levels, slowing from 8.8 percent in September.
The year-over-year increase in the total CPI also accelerated to 3.3 percent, just under consensus, after slowing to 3.0 percent in September from 3.2 percent in August. Service prices have been rising steadily as many firms have raised wages to secure workers. Pent-up demand for traveling among Japanese and resumed group tours from China boosted hotel fees, helping push up the inflation rate.
By contrast, underlying inflation measured by the core-core CPI (excluding fresh food and energy) moderated further to a seven-month low of 4.0 percent, just below the median forecast, from 4.2 percent in September and a 42-year high of 4.3 percent recorded in August, July and May.
In its quarterly Outlook Report for October, the Bank of Japan board revised up its core CPI forecast for fiscal 2023 ending next March further to 2.8 percent from 2.5 percent forecast in July, and jacked up its projection for fiscal 2024 to 2.8 percent from 1.9 percent. The board's median forecast for fiscal 2025 is 1.7 percent, revised up slightly from 1.6 percent, but that would be still below its 2 percent inflation target as the pass-through impact of high import costs is set to wane.
Econoday's Relative Performance Index (RPI) stood at minus 25, below zero, which indicates the Japanese economy is performing worse than expected after underperforming with a smaller margin earlier. Excluding the impact of inflation, the RPI was at minus 10.
The national average core consumer price index (excluding fresh food) rose 2.9 percent from a year earlier in October, just below the median economist forecast of a 3.0 percent rise (forecasts ranged from 2.9 percent to 3.2 percent). It is the 26th straight year-over-year increase after rising 2.8 percent in September (the slowest since 2.8 percent in August 2022), 3.1 percent in both August and July and 3.3 percent in June. The slowdown to 3.3 percent in February was the first deceleration in 13 months after rising to 4.2 percent in January from 4.0 percent the previous month.
The 4.2 percent rise in January was 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 real wages are still nearly 3 percent below year-earlier levels. Service prices excluding owners' equivalent rent rose 3.1 percent on the year in October, after rising 2.9 percent in September and 3.0 percent in August. Goods prices excluding fresh food gained 3.6 percent, slowing from 3.5 percent in September and 4.1 percent in August.
The underlying inflation rate -- measured by the core-core CPI (excluding fresh food and energy) -- rose 4.0 percent on the year in October, following increases of 4.2 percent in September, 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 19th straight year-over-year increase but was the slowest since the 3.8 percent gain in March 2023 and just below the median economist forecast of a 4.1 percent rise (forecasts ranged from 4.0 percent to 4.1 percent). The 4.3 percent rise was 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 October for the 26th consecutive year-over-year increase following increases of 3.0 percent in September (the slowest since 3.0 percent in September 2022), 3.2 percent in August and 3.3 percent in both July and June. It was also just under the median forecast of a 3.4 percent rise (forecasts ranged from 3.2 percent to 3.7 percent gains). Fresh food prices, a volatile factor, surged 14.1 percent on year and pushed up the overall index by 0.59 percentage point after rising 9.6 percent (up 0.40 point) the previous month. The 4.3 percent increase January's total CPI was 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 dipped 8.7 percent on year in October, pushing down the CPI by 0.75 percentage point, after falling 11.7 percent with a negative 1.00-poing contribution in September. The 0.7 percent drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
Gasoline prices rose 5.0 percent on the year, adding 0.11 percentage point to the CPI in October, after rising 8.7 percent (a positive 0.19-point contribution) in September and posting their first year-over-year rise in six months in July with a 1.1 percent gain (plus 0.02 point). Retail gasoline prices hit record highs from late August to early September.
Electricity charges fell 16.8 percent on year (a negative 0.69-point contribution) in October after slumping 24.6 percent (minus 1.01 points) in September. In February 2023, 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 was extended until the end of 2023.
The prices for natural gas supplied to homes slipped 13.8 percent with a negative 0.16-point contribution in October, after falling 17.5 percent (minus 0.20 point) in September 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 28th straight year-over-year increase but the pace slowed to 7.6 percent (plus 1.74 points) in October from 8.8 percent (plus 2.01 points) in September and 9.2 percent (plus 2.08 points) in August and July, which was 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 (curry), eating out (Korean barbecue), snacks including ice cream (the heat wave lingered) and soft drinks, as seen in recent months.
The prices for household durable goods marked their 19th consecutive gain in October. The pace of increase accelerated to 3.2 percent (plus 0.05-point contribution) after decelerating to 1.5 percent (plus 0.02 point) in September from 3.0 percent (plus 0.04 point) in August, 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.
Accommodations, which have a relatively small weight in the CPI basket of goods and services, jumped 42.6 percent on year (plus 0.35-point contribution) in October after rising 17.9 percent (plus 0.17-point contribution) in September, 18.1 percent (plus 0.19 point) in August and 15.1 percent (0.15 point) in July. People have been traveling more freely since the Japanese government widely eased Covid public health restrictions in May. The number of visitors from other countries has also recovered to pre-pandemic levels.
Market Consensus Before Announcement
Consumer inflation in Japan is forecast to have picked up in two of the three key measures in October as halved subsidies for electricity and natural gas utilities slowed the recent sharp drop in overall energy costs, offsetting the effects of smaller processed food markups.
The core measure (excluding fresh food prices but including energy) is seen up 3.0 percent on the year, led by peaking but still elevated prices for processed food and rising service costs, after easing to 2.8 percent in September from 3.1 percent in August. Pent-up demand for traveling among Japanese and resumed group tours from China boosted hotel fees, leading to a higher inflation rate. The year-over-year increase in the total CPI is also expected to have accelerated to 3.4 percent after slowing to 3.0 percent in September from 3.2 percent in August. Service price gains have accelerated as many firms have raised wages to secure workers.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) is forecast at 4.1 percent, down from 4.2 percent in September and a 42-year high of 4.3 percent recorded in August, July and May.
The core measure (excluding fresh food prices but including energy) is seen up 3.0 percent on the year, led by peaking but still elevated prices for processed food and rising service costs, after easing to 2.8 percent in September from 3.1 percent in August. Pent-up demand for traveling among Japanese and resumed group tours from China boosted hotel fees, leading to a higher inflation rate. The year-over-year increase in the total CPI is also expected to have accelerated to 3.4 percent after slowing to 3.0 percent in September from 3.2 percent in August. Service price gains have accelerated as many firms have raised wages to secure workers.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) is forecast at 4.1 percent, down from 4.2 percent in September and a 42-year high of 4.3 percent recorded in August, July and May.
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.
