| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 2.6% | 2.3% to 2.8% | 2.6% | 2.9% |
| Ex-Fresh Food - Y/Y | 2.6% | 2.2% to 2.8% | 2.5% | 2.9% |
| Ex-Fresh Food & Energy - Y/Y | 3.1% | 2.8% to 3.1% | 3.0% | 3.1% |
Market Consensus Before Announcement
Key forecast points:
--Consumer inflation in Tokyo, the leading indicator of the national average, is expected to have slowed further to 2.6% in August in the core measure (excluding fresh food) after having decelerated to 2.9% in July from 3.1% in June. The main drivers remain the same as in the previous month: nationwide retail gasoline and heating oil subsidies and a plunge in water bills thanks to the city’s free base charge for four months that began in June.
--The year-on-year rise in the total CPI is also seen decelerating to 2.6% after slowing to 2.9% in July from 3.1% in June, showing similar patterns as in the core reading. 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 expected remain notably sticker at 3.1% after staying at 3.1% in July and easing to the level in June from 3.3% in May.
--Lower inbound spending amid the stronger yen vs. its weakness seen last year is also helping ease upward pressures on consumer prices. Energy prices are expected to post a year-on-year decline for the second straight month following many months of gains. On the upside, elevated processed food prices continue to hurt households. Serious domestic rice supply shortages have eased but regular rice prices in Tokyo’s 23-ward areas were still up 81.2% on the year in July, only slightly slower than 89.2% in June and 93.2% in May. The deceleration pace in August is also expected to be gradual.
--Consumer inflation in Tokyo, the leading indicator of the national average, is expected to have slowed further to 2.6% in August in the core measure (excluding fresh food) after having decelerated to 2.9% in July from 3.1% in June. The main drivers remain the same as in the previous month: nationwide retail gasoline and heating oil subsidies and a plunge in water bills thanks to the city’s free base charge for four months that began in June.
--The year-on-year rise in the total CPI is also seen decelerating to 2.6% after slowing to 2.9% in July from 3.1% in June, showing similar patterns as in the core reading. 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 expected remain notably sticker at 3.1% after staying at 3.1% in July and easing to the level in June from 3.3% in May.
--Lower inbound spending amid the stronger yen vs. its weakness seen last year is also helping ease upward pressures on consumer prices. Energy prices are expected to post a year-on-year decline for the second straight month following many months of gains. On the upside, elevated processed food prices continue to hurt households. Serious domestic rice supply shortages have eased but regular rice prices in Tokyo’s 23-ward areas were still up 81.2% on the year in July, only slightly slower than 89.2% in June and 93.2% in May. The deceleration pace in August is also expected to be gradual.
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.
