| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| CPI - Y/Y | 3.5% | 3.3% to 3.6% | 3.4% | 3.5% | 3.4% |
| Ex-Fresh Food - Y/Y | 3.5% | 3.3% to 3.6% | 3.6% | 3.4% | |
| Ex-Fresh Food & Energy - Y/Y | 3.2% | 3.1% to 3.3% | 3.3% | 3.1% |
Highlights
Consumer inflation in Tokyo, the leading indicator of the national average, remained elevated in May after surging in April, when the price-cutting base-year effect of free high school education in the capital waned and after the government had halved its utility subsidies for the three-month heating season (bills are paid from February to April). Processed food costs were also high amid the lingering impact of domestic rice shortages.
The core reading (excluding fresh food) rose to a 28-month high of 3.6% after surging to a 25-month high of a 3.4% rise in April from 2.4% in March. The year-on-year rise in the total CPI stayed at 3.4% after rising to the level (revised down from +3.5%) in April from 2.9% in March. The annual rate for the core-core CPI (excluding fresh food and energy), which is little affected by fluctuations in gasoline and heating oil prices, accelerated to 3.3% after soaring to 3.1% in April from 2.2% previously.
Energy costs rose 8.7% on year (+9.4% in the prior month), adding 0.45 percentage point to the total CPI (vs. +0.47 point), while processed food prices gained 6.9% (vs. +6.4%), lifting the index by 1.58 points (vs. +1.47 points). The retail prices for rice remained high, up 93.2% on year (vs. 93.1% in April). The government has cancelled tenders for rice reserves and instead is now selling directly to each wholesaler and making more available for consumers via leading marketplaces like Rakuten in hopes of pushing down consumer prices for the staple.
At its latest meeting on April 30-May 1, the Bank of Japan's nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5%, as widely expected, amid high uncertainty over global growth and inflation sparked by stiff Trump tariffs, after having stood pat in March. Previously, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in its third hike during the current normalization process that began in March 2024. The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until March 2024.
The board now expects underlying CPI inflation to settle around the bank's 2% target in the second half of the projection period (fiscal 2025 through fiscal 2027), which is about six to 12 months later than projected earlier. But Governor Kazuo Ueda told a post-meeting news conference that it does not necessarily mean that the timing of the next rate hike will be pushed back in the same way.
The core reading (excluding fresh food) rose to a 28-month high of 3.6% after surging to a 25-month high of a 3.4% rise in April from 2.4% in March. The year-on-year rise in the total CPI stayed at 3.4% after rising to the level (revised down from +3.5%) in April from 2.9% in March. The annual rate for the core-core CPI (excluding fresh food and energy), which is little affected by fluctuations in gasoline and heating oil prices, accelerated to 3.3% after soaring to 3.1% in April from 2.2% previously.
Energy costs rose 8.7% on year (+9.4% in the prior month), adding 0.45 percentage point to the total CPI (vs. +0.47 point), while processed food prices gained 6.9% (vs. +6.4%), lifting the index by 1.58 points (vs. +1.47 points). The retail prices for rice remained high, up 93.2% on year (vs. 93.1% in April). The government has cancelled tenders for rice reserves and instead is now selling directly to each wholesaler and making more available for consumers via leading marketplaces like Rakuten in hopes of pushing down consumer prices for the staple.
At its latest meeting on April 30-May 1, the Bank of Japan's nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5%, as widely expected, amid high uncertainty over global growth and inflation sparked by stiff Trump tariffs, after having stood pat in March. Previously, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in its third hike during the current normalization process that began in March 2024. The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until March 2024.
The board now expects underlying CPI inflation to settle around the bank's 2% target in the second half of the projection period (fiscal 2025 through fiscal 2027), which is about six to 12 months later than projected earlier. But Governor Kazuo Ueda told a post-meeting news conference that it does not necessarily mean that the timing of the next rate hike will be pushed back in the same way.
Market Consensus Before Announcement
Consumer inflation in Tokyo, the leading indicator of the national average, is expected to remain elevated in May after surging in April, when the price-cutting base-year effect of free high school education in the capital had waned and after the government had halved its utility subsidies for the three-month heating season ending in March (bills are paid from February to April). Processed food prices also stayed high amid the lingering impact of domestic rice shortages and high import costs.
The core reading (excluding fresh food) is forecast at a 25-month high of a 3.5% rise on year after surging to 3.4% in April from 2.4% in March. The year-on-year rise in the total CPI is expected to stand at 3.5% after soaring to a 24-month high of 3.5% from 2.9%. The annual rate for the core-core CPI (excluding fresh food and energy), which is little affected by fluctuations in gasoline and heating oil prices, is seen ticking up to 3.2% after jumping to 3.1% from 2.2%.
At its latest meeting on April 30-May 1, the Bank of Japan's nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5%, as widely expected, amid high uncertainty over global growth and inflation sparked by stiff Trump tariffs, after having stood pat in March. At the previous meeting in January, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in its third hike during the current normalization process that began in March 2024. The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until March 2024.
The board now expects underlying CPI inflation to settle around the bank’s 2% target in the second half of the projection period (fiscal 2025 through fiscal 2027), which is about six to 12 months later than projected earlier. But Governor Kazuo Ueda told a post-meeting news conference that it “does not necessarily mean that the timing of the next rate hike will be pushed back in the same way.”
The core reading (excluding fresh food) is forecast at a 25-month high of a 3.5% rise on year after surging to 3.4% in April from 2.4% in March. The year-on-year rise in the total CPI is expected to stand at 3.5% after soaring to a 24-month high of 3.5% from 2.9%. The annual rate for the core-core CPI (excluding fresh food and energy), which is little affected by fluctuations in gasoline and heating oil prices, is seen ticking up to 3.2% after jumping to 3.1% from 2.2%.
At its latest meeting on April 30-May 1, the Bank of Japan's nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5%, as widely expected, amid high uncertainty over global growth and inflation sparked by stiff Trump tariffs, after having stood pat in March. At the previous meeting in January, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in its third hike during the current normalization process that began in March 2024. The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until March 2024.
The board now expects underlying CPI inflation to settle around the bank’s 2% target in the second half of the projection period (fiscal 2025 through fiscal 2027), which is about six to 12 months later than projected earlier. But Governor Kazuo Ueda told a post-meeting news conference that it “does not necessarily mean that the timing of the next rate hike will be pushed back in the same way.”
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.
