| Consensus | Consensus Range | Actual | Previous | |
| CPI - Y/Y | 2.1% | 2.0% to 2.3% | 2.1% | 2.9% |
| Ex-Fresh Food - Y/Y | 2.4% | 2.3% to 2.5% | 2.4% | 3.0% |
| Ex-Fresh Food & Energy - Y/Y | 2.8% | 2.7% to 3.0% | 2.9% | 3.0% |
Highlights
Japan's consumer inflation decelerated sharply by six to eight ticks in two of the three key measures in December to around the Bank of Japan's 2% price stability target in reaction to a double-digit percentage rise in energy costs a year earlier. It is also thanks to the recent easing trend in processed food price hikes that had seen a spike caused by protracted domestic rice supply shortages and higher import costs. An expected sharp slowdown in total CPI's annual rate mirrors a drop in fresh food prices.
The core CPI (excluding fresh food) rose 2.4% on the year in December, down sharply the 3.0% increase in November and hitting the lowest since in 15 months since 2.4% in September 2024. The annual rate for the total CPI decelerated to a 45-month low of 2.1% (since 1.2% in March 2022), down from 2.9% previously. Underlying inflation, as measured by the core-core CPI that excludes both fresh food and energy, moderated slightly to 2.8% from 3.0%.
Details:
Japan Dec core CPI (excluding fresh food) +2.4% y/y, 52nd straight rise (Nov +3.0%); median forecast +2.4%
Japan Dec total CPI +2.1% y/y, 52nd straight rise (Nov +2.9%); median forecast +2.1%
Japan Dec core-core CPI (ex-fresh food, energy) +2.9% y/y, 45th straight rise (Nov +3.0); median forecast +2.8%
Japan Dec core inflation slows sharply on energy price drop, slower processed food rise; total CPI much slower on falling fresh food prices
Japan Dec core CPI annual rate at 2.4% lowest in 15 months since 2.4% in Sept 2024
Japan Dec total CPI annual rate at 2.1% lowest in 45 months since 1.2% in Mar 2022
Japan 2025 average core CPI +3.1%, 4th straight annual rise; +2.5% in 2024, +3.1% in 2023, +2.3% in 2022, -0.2% in each of pandemic-hit 2021, 2020
Japan Dec CPI: energy prices -3.1% y/y (-0.25 POINT vs. +2.5% (+0.19 PT) in Nov
Japan Dec CPI services (ex-owners' equivalent rent) +1.9% vs. +2.1% in Nov; goods (ex-fresh food) +3.2% vs. +4.2% in Nov
Market Consensus Before Announcement
Japan’s nationwide consumer inflation is expected to decelerate sharply in December, reflecting slower food price inflation and a decline in energy prices, as the expiration of subsidies pushed down electricity and gas prices. Still, overall consumer inflation is forecast to remain above the Bank of Japan’s 2 percent target.
The core CPI, excluding fresh food, is expected to post its 52nd consecutive month of year-on-year gains, though the pace of increase is seen slowing. It is forecast to rise 2.4 percent in December, the lowest reading since October 2024, down from 3.0 percent in both October and November.
The total CPI is expected to climb 2.1 percent in December, a sharp slowdown from 2.9 percent in November and 3.0 percent in October. Underlying inflation, measured by the core-core CPI that excludes both fresh food and energy, is seen rising 2.8 percent, compared with 3.0 percent in October and November.
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.
Description
The CPI has been in the spotlight as Japan struggled to make its way out of deflation. 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.