| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 2.1% | 1.9% to 2.3% | 2.2% | 1.8% |
| Ex-Fresh Food - Y/Y | 1.9% | 1.6% to 2.1% | 1.9% | 1.6% |
| Ex-Fresh Food & Energy - Y/Y | 1.7% | 1.7% to 1.8% | 1.7% | 1.8% |
Highlights
Consumer inflation in Tokyo, a leading indicator of the national average, picked up in May in two of the three key measures, driven by higher utility costs due to reduced subsidies and the weak yen pushing up import prices.
The core CPI (excluding fresh food), closely watched by the Bank of Japan, posted a 1.9 percent increase on year, in line with the median forecast of 1.9 percent. This rise followed a sharp deceleration to a 25-month low of 1.6 percent in April from 2.4 percent in March, influenced by the introduction of completely free high school education in the metropolitan area and the easing of gains in processed food and hotel fees.
Overall energy prices rose 5.9 percent after falling 2.9 percent in April while durable goods prices also showed a 4.1 percent gain after a 3.8 percent drop. Processed food prices rose 3.2 percent, the same rate as in the previous month and hotel fee rose 14.7 percent versus 18.8 percent.
The total CPI annual rate accelerated to 2.2 percent, just above the consensus forecast of 2.1 percent, up from a three-month low of 1.8 percent. By contrast, the core-core CPI (excluding fresh food and energy) annual rate eased further to a 20-month low of 1.7 percent, matching the median forecast of a 1.7 percent rise and down from 1.8 percent in April.
Services costs have led overall inflation until recently as firms raise wages at a faster pace to secure qualified workers amid widespread labor shortages. However, the plunge in education costs have pushed down services inflation, starting in April. The prices of services excluding owners' equivalent rent gained 0.7 percent on year in May, contributing 0.26 point to the Tokyo CPI, following a 1.0 percent rise (adding 0.36 point) in April. The annual rate of goods prices excluding fresh food accelerated to 3.6 percent (adding 1.48 points) from 2.5 percent (adding 1.06 points) the previous month.
Econoday's Relative Performance Index stands at minus 5, below zero, indicating the Japanese economy is performing slightly worse than expected. Excluding the impact of inflation, the RPI is at minus 13.
The core CPI (excluding fresh food), closely watched by the Bank of Japan, posted a 1.9 percent increase on year, in line with the median forecast of 1.9 percent. This rise followed a sharp deceleration to a 25-month low of 1.6 percent in April from 2.4 percent in March, influenced by the introduction of completely free high school education in the metropolitan area and the easing of gains in processed food and hotel fees.
Overall energy prices rose 5.9 percent after falling 2.9 percent in April while durable goods prices also showed a 4.1 percent gain after a 3.8 percent drop. Processed food prices rose 3.2 percent, the same rate as in the previous month and hotel fee rose 14.7 percent versus 18.8 percent.
The total CPI annual rate accelerated to 2.2 percent, just above the consensus forecast of 2.1 percent, up from a three-month low of 1.8 percent. By contrast, the core-core CPI (excluding fresh food and energy) annual rate eased further to a 20-month low of 1.7 percent, matching the median forecast of a 1.7 percent rise and down from 1.8 percent in April.
Services costs have led overall inflation until recently as firms raise wages at a faster pace to secure qualified workers amid widespread labor shortages. However, the plunge in education costs have pushed down services inflation, starting in April. The prices of services excluding owners' equivalent rent gained 0.7 percent on year in May, contributing 0.26 point to the Tokyo CPI, following a 1.0 percent rise (adding 0.36 point) in April. The annual rate of goods prices excluding fresh food accelerated to 3.6 percent (adding 1.48 points) from 2.5 percent (adding 1.06 points) the previous month.
Econoday's Relative Performance Index stands at minus 5, below zero, indicating the Japanese economy is performing slightly worse than expected. Excluding the impact of inflation, the RPI is at minus 13.
Market Consensus Before Announcement
Consumer inflation in Tokyo, the leading indicator of the national average, is forecast to pick up in May in two of the three key measures on higher utility costs due to reduced subsidies that are ending this month and amid the weak yen that is pushing up import prices. The core CPI (excluding fresh food), closely watched by the Bank of Japan, is expected to post a 1.9 percent increase on year after decelerating sharply to a 25-month low of 1.6 percent in April from 2.4 percent in March as completely free high school education took effect in the metropolitan area and gains in processed food and hotel fees continued easing. The year-over-year rise in the total CPI is forecast at 2.1 percent, up from a three-month low of 1.8 percent. The core-core CPI (excluding fresh food and energy) annual rate is expected to ease further to a 25-month low of 1.7 percent from 1.8 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.
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
Description
The CPI has been in the spotlight as Japan struggled to make its way out of deflation. It is now closely monitored because the recent spike in energy and commodity markets and supply chain constraints during the global pandemic boosted Japan’s inflation rate to the highest in over four decades in 2022.
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.
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.
