| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 2.3% | 2.3% to 2.7% | 2.2% | 2.3% |
| Ex-Fresh Food - Y/Y | 2.2% | 2.1% to 2.5% | 2.2% | 2.1% |
| Ex-Fresh Food & Energy - Y/Y | 1.6% | 1.4% to 1.8% | 1.5% | 1.8% |
Highlights
Consumer inflation in Tokyo, the leading indicator of the national average, picked up only slightly in July in the core reading after the government ended 18-month long utility subsidies in June for July bills but slowed in two of the three key measures as the upward move in overall energy prices was offset by easing processed food markups and slower gains in hotels and mobile phone communications charges.
The core CPI (excluding fresh food), closely watched by the Bank of Japan, posted a 2.2 percent increase on year, as expected, after the pace of increase rose to 2.1 percent in June from 1.9 percent in May in light of higher energy costs caused by reduced subsidies. The slump to a 25-month low of 1.6 percent in April was caused by a special regional factor: The Tokyo metropolitan government added fiscal support to make high school education completely free in the capital.
The year-over-year rise in the total CPI decelerated to 2.2 percent, just below the median forecast of 2.3 percent, after accelerating to 2.3 percent in June from 2.2 percent in May and 1.8 percent in April. The core-core CPI (excluding fresh food and energy) annual rate stood at 1.5 percent (versus the consensus call of 1.6 percent), slowing from 1.8 percent in June, when it rose from a 20-month low of 1.7 percent in May.
Judging from the tame CPI data and falling real wages, the Bank of Japan board is expected to maintain its policy stance at its two-day meeting on July 30-31 and is likely to wait until Sept. 20-21 meeting to follow up on its first rate hike in 17 years in March by raising the overnight interest rate target to 0.25 percent from the current range of zero to 0.1 percent.
The increase in processed food continues easing. This category replaced energy as the largest positive contributor to the CPI increase in October 2022 (plus 1.27 points vs. plus 1.20 points) but in the latest report for July, it was replaced by energy, which pushed up the index by 0.72 point (versus plus 0.38 point in June) as its effect has declined to plus 0.60 point (versus plus 0.70 point).
Services costs have lost upward momentum in recent months as the regulated wages for medical and welfare service workers and education support providers remain depressed despite the highest overall wage hikes in 33 years for employees at large firms this year.
The prices of services excluding owners' equivalent rent rose just 0.6 percent on year in July, contributing 0.20 point to the Tokyo CPI, down from a 1.1 percent rise (plus 0.38 point) in May. The annual rate of goods prices excluding fresh food accelerated to 4.3 percent (adding 1.77 points) from 3.7 percent (plus 1.54 points) in June mainly due to higher utility costs.
Econoday's Relative Performance Index stands at minus 23, below zero, which indicates the Japanese economy is performing 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 2.2 percent increase on year, as expected, after the pace of increase rose to 2.1 percent in June from 1.9 percent in May in light of higher energy costs caused by reduced subsidies. The slump to a 25-month low of 1.6 percent in April was caused by a special regional factor: The Tokyo metropolitan government added fiscal support to make high school education completely free in the capital.
The year-over-year rise in the total CPI decelerated to 2.2 percent, just below the median forecast of 2.3 percent, after accelerating to 2.3 percent in June from 2.2 percent in May and 1.8 percent in April. The core-core CPI (excluding fresh food and energy) annual rate stood at 1.5 percent (versus the consensus call of 1.6 percent), slowing from 1.8 percent in June, when it rose from a 20-month low of 1.7 percent in May.
Judging from the tame CPI data and falling real wages, the Bank of Japan board is expected to maintain its policy stance at its two-day meeting on July 30-31 and is likely to wait until Sept. 20-21 meeting to follow up on its first rate hike in 17 years in March by raising the overnight interest rate target to 0.25 percent from the current range of zero to 0.1 percent.
The increase in processed food continues easing. This category replaced energy as the largest positive contributor to the CPI increase in October 2022 (plus 1.27 points vs. plus 1.20 points) but in the latest report for July, it was replaced by energy, which pushed up the index by 0.72 point (versus plus 0.38 point in June) as its effect has declined to plus 0.60 point (versus plus 0.70 point).
Services costs have lost upward momentum in recent months as the regulated wages for medical and welfare service workers and education support providers remain depressed despite the highest overall wage hikes in 33 years for employees at large firms this year.
The prices of services excluding owners' equivalent rent rose just 0.6 percent on year in July, contributing 0.20 point to the Tokyo CPI, down from a 1.1 percent rise (plus 0.38 point) in May. The annual rate of goods prices excluding fresh food accelerated to 4.3 percent (adding 1.77 points) from 3.7 percent (plus 1.54 points) in June mainly due to higher utility costs.
Econoday's Relative Performance Index stands at minus 23, below zero, which indicates the Japanese economy is performing 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 accelerate slightly in the core reading (only fresh food is excluded) in July on higher utility bills but decelerate when energy is also stripped out. The government has ended its 18-month campaign to contain utility prices with subsidies and the persistently weak yen is keeping import costs high. The core CPI (excluding fresh food), closely watched by the Bank of Japan, is expected to post a 2.2 percent increase on year after rising to 2.1 percent in June from 1.9 percent in May due to reduced energy subsidies. The year-over-year rise in the total CPI is forecast at 2.3 percent after rising at the same rate the previous month. The core-core CPI (excluding fresh food and energy) annual rate is seen at 1.6 percent, down from 1.8 percent, amid easing processed food price markups.
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.
