| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 2.3% | 2.1% to 2.4% | 2.3% | 2.2% |
| Ex-Fresh Food - Y/Y | 2.0% | 1.9% to 2.1% | 2.1% | 1.9% |
| Ex-Fresh Food & Energy - Y/Y | 1.7% | 1.5% to 1.8% | 1.8% | 1.7% |
Highlights
Consumer inflation in Tokyo, the leading indicator of the national average, accelerated in June in all three key measures on higher utility costs due to reduced subsidies and renewed upward pressures from rising import costs amid the protracted weakness of the yen. Hot weather boosted demand for air conditioners, leading to higher durable goods prices, and hotel fees also helped pushed up inflation.
The increase in processed food has peaked but the item remains the largest contributor, raising the total CPI by 0.70 percentage point, while energy prices added 0.38 point to the index.
The core CPI (excluding fresh food), closely watched by the Bank of Japan, posted a 2.1 percent increase on year, just above the median forecast of 2.0 percent, after picking up to 1.9 percent in May from a 25-month low of 1.6 percent in April, which was due to completely free high school education in the capital.
The year-over-year rise in the total CPI accelerated to 2.3 percent, as expected, after rising to 2.2 percent in May from a three-month low of 1.8 percent in April. The core-core CPI (excluding fresh food and energy) annual rate rose to 1.8 percent from a 20-month low of 1.7 percent in May, coming in slightly higher than the median forecast of a 1.7 percent rise.
Services costs have lost upward momentum in recent months as wages for medical and welfare service workers and education providers remain depressed despite the highest overall wage hikes in 33 years for employees at large firms this year. Services prices in Tokyo have also been pushed down by the metropolitan government's move in April to add its own financial support to national subsidies, effectively making all public and private high schools in the prefecture tuition free.
The prices of services excluding owners' equivalent rent rose 1.1 percent on year in June, contributing 0.38 point to the Tokyo CPI, up from a 0.7 percent rise (plus 0.26 point) in May. The annual rate of goods prices excluding fresh food accelerated to 3.7 percent (adding 1.54 points) after rising to 3.6 percent (plus 1.48 points) in May from 2.5 percent (plus 1.06 points) in April in light of higher utility costs.
Econoday's Relative Performance Index stands at plus 16, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the RPI is at plus 24.
The increase in processed food has peaked but the item remains the largest contributor, raising the total CPI by 0.70 percentage point, while energy prices added 0.38 point to the index.
The core CPI (excluding fresh food), closely watched by the Bank of Japan, posted a 2.1 percent increase on year, just above the median forecast of 2.0 percent, after picking up to 1.9 percent in May from a 25-month low of 1.6 percent in April, which was due to completely free high school education in the capital.
The year-over-year rise in the total CPI accelerated to 2.3 percent, as expected, after rising to 2.2 percent in May from a three-month low of 1.8 percent in April. The core-core CPI (excluding fresh food and energy) annual rate rose to 1.8 percent from a 20-month low of 1.7 percent in May, coming in slightly higher than the median forecast of a 1.7 percent rise.
Services costs have lost upward momentum in recent months as wages for medical and welfare service workers and education providers remain depressed despite the highest overall wage hikes in 33 years for employees at large firms this year. Services prices in Tokyo have also been pushed down by the metropolitan government's move in April to add its own financial support to national subsidies, effectively making all public and private high schools in the prefecture tuition free.
The prices of services excluding owners' equivalent rent rose 1.1 percent on year in June, contributing 0.38 point to the Tokyo CPI, up from a 0.7 percent rise (plus 0.26 point) in May. The annual rate of goods prices excluding fresh food accelerated to 3.7 percent (adding 1.54 points) after rising to 3.6 percent (plus 1.48 points) in May from 2.5 percent (plus 1.06 points) in April in light of higher utility costs.
Econoday's Relative Performance Index stands at plus 16, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the RPI is at plus 24.
Market Consensus Before Announcement
Consumer inflation in Tokyo, the leading indicator of the national average, is forecast to pick up slightly in May in two of the three key measures on higher utility costs due to reduced subsidies and amid the weak yen that is still pushing up import prices. The core CPI (excluding fresh food), closely watched by the Bank of Japan, is expected to post a 2.0 percent increase on year after rising to 1.9 percent from a 25-month low of 1.6 percent in April, which was due to completely free high school education in the capital. The year-over-year rise in the total CPI is forecast at 2.3 percent, up slightly from 2.2 percent. The core-core CPI (excluding fresh food and energy) annual rate is seen unchanged at 1.7 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.
