| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 2.4% | 2.2% to 2.7% | 2.8% | 2.5% |
| Ex-Fresh Food - Y/Y | 2.4% | 2.3% to 2.7% | 2.8% | 2.5% |
| Ex-Fresh Food & Energy - Y/Y | 2.4% | 2.2% to 2.7% | 2.8% | 2.5% |
Highlights
Consumer inflation in Tokyo, the leading indicator of the national average, jumped three ticks on year in all three key measures in October (23-ward central area households surveyed in mid-October) after the Tokyo metropolitan government had wrapped up its four-month program to wave base charges for water supply during the heat wave at the end of September, as planned.
The one-off 0.24 percentage point surge in water bills' contribution to total CPI vs. September's, combined with the effect of higher hotel charges, far more than offset slightly negative gaps in energy (-0.02 point) and processed food (-0.03 point) between October and September. The November Tokyo CPI report should see zero y/y contribution from water charges and nearly effects of other utilities.
Takeaway: This should not cause any concerns among Bank of Japan board members who are watching to see whether the much sought-after pickup in services costs reflecting wage hikes will become sustainable and replace sticky goods inflation as the main driver of stable 2% inflation in the long run. Consumer inflation has been driven mainly by protracted domestic rice supply shortages and higher import costs amid the weak yen.
Details:
Tokyo Oct core CPI (ex-fresh food) +2.8% y/y (Sept +2.5%), median forecast +2.4% (range: +2.3% to +2.7%)
Total CPI +2.8% y/y (Sept +2.5%); median forecast +2.4% (range: +2.2% to +2.7%)
Core-core CPI (ex-fresh food, energy) +2.8% y/y (Sept +2.5%); median forecast +2.4% (range: +2.2% to +2.7%)
Japan capital region inflation boosted by one-off surge in water bills (flat y/y vs. -34.6% in Sept) as Tokyo metro govt ends free base charges in Sept
Energy +2.2% y/y (+0.11 point contribution) vs. +2.7% (+0.14 point) in Sept, which was 1st rise in 3 months
Processed food +6.7% (+1.56 point) vs. +6.9% (+1.59 point) in Sept
Hotel fees +8.5% y/y (+0.13 point) vs. +5.8% (+0.08 point) in Sept
Rice price hike continues easing to +38.4% y/y (+0.18 point) from Sept +46.9% y/y (+0.18 pt), Aug +67.8% (+0.24 pt)
The one-off 0.24 percentage point surge in water bills' contribution to total CPI vs. September's, combined with the effect of higher hotel charges, far more than offset slightly negative gaps in energy (-0.02 point) and processed food (-0.03 point) between October and September. The November Tokyo CPI report should see zero y/y contribution from water charges and nearly effects of other utilities.
Takeaway: This should not cause any concerns among Bank of Japan board members who are watching to see whether the much sought-after pickup in services costs reflecting wage hikes will become sustainable and replace sticky goods inflation as the main driver of stable 2% inflation in the long run. Consumer inflation has been driven mainly by protracted domestic rice supply shortages and higher import costs amid the weak yen.
Details:
Tokyo Oct core CPI (ex-fresh food) +2.8% y/y (Sept +2.5%), median forecast +2.4% (range: +2.3% to +2.7%)
Total CPI +2.8% y/y (Sept +2.5%); median forecast +2.4% (range: +2.2% to +2.7%)
Core-core CPI (ex-fresh food, energy) +2.8% y/y (Sept +2.5%); median forecast +2.4% (range: +2.2% to +2.7%)
Japan capital region inflation boosted by one-off surge in water bills (flat y/y vs. -34.6% in Sept) as Tokyo metro govt ends free base charges in Sept
Energy +2.2% y/y (+0.11 point contribution) vs. +2.7% (+0.14 point) in Sept, which was 1st rise in 3 months
Processed food +6.7% (+1.56 point) vs. +6.9% (+1.59 point) in Sept
Hotel fees +8.5% y/y (+0.13 point) vs. +5.8% (+0.08 point) in Sept
Rice price hike continues easing to +38.4% y/y (+0.18 point) from Sept +46.9% y/y (+0.18 pt), Aug +67.8% (+0.24 pt)
Market Consensus Before Announcement
Consumer inflation in Tokyo, the leading indicator of the national average, is forecast to have decelerated slightly in all three key measures in October as the upward pressures from processed food (mostly rice) prices continue to ease, offsetting a possible uptick in energy costs caused by the phasing out of the peak season national subsides for electricity and natural gas.
The core measure (excluding fresh food) is expected to post a 2.4% increase on the year in October after stabilizing at 2.5% in September and easing to the level in August from 2.9% in July. Nationwide rice supply shortages have been largely resolved, thanks to release of official reserves of older rice and emergence of fresh crops.
The year-on-year rise in the total CPI is also seen slowing to 2.4% from 2.5% in the previous two months and 2.9% in July. 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 estimated to be at 2.4% vs. 2.5% previously.
Unique to the Tokyo prefecture (one of 47 jurisdictions) are the inflation-soothing effects of the free day-care services that were upgraded in September (expanded to the first child of eligible families from their second child onward), which are expected to help ease the October data. The Tokyo government’s free base charge in water that began in June for the heat wave season was finished in September.
The current high inflation rate is not fully backed by domestic demand (wage-heavy services price hikes lag behind goods price gains) but largely pushed up by higher import costs. This means wage growth is not catching up with inflation and thus that underlying inflation, estimated by the Bank of Japan to be around 1.5%, is still below the bank’s 2% price stability target in the long run.
The Bank of Japan is in the process of normalizing its policy stance gradually so that higher borrowing costs would not upset the economy’s wobbly recovery after a decade-long large-scale easing period through 2022.
The core measure (excluding fresh food) is expected to post a 2.4% increase on the year in October after stabilizing at 2.5% in September and easing to the level in August from 2.9% in July. Nationwide rice supply shortages have been largely resolved, thanks to release of official reserves of older rice and emergence of fresh crops.
The year-on-year rise in the total CPI is also seen slowing to 2.4% from 2.5% in the previous two months and 2.9% in July. 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 estimated to be at 2.4% vs. 2.5% previously.
Unique to the Tokyo prefecture (one of 47 jurisdictions) are the inflation-soothing effects of the free day-care services that were upgraded in September (expanded to the first child of eligible families from their second child onward), which are expected to help ease the October data. The Tokyo government’s free base charge in water that began in June for the heat wave season was finished in September.
The current high inflation rate is not fully backed by domestic demand (wage-heavy services price hikes lag behind goods price gains) but largely pushed up by higher import costs. This means wage growth is not catching up with inflation and thus that underlying inflation, estimated by the Bank of Japan to be around 1.5%, is still below the bank’s 2% price stability target in the long run.
The Bank of Japan is in the process of normalizing its policy stance gradually so that higher borrowing costs would not upset the economy’s wobbly recovery after a decade-long large-scale easing period through 2022.
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.
