| Consensus | Consensus Range | Actual | Previous | |
| CPI - Y/Y | 1.4% | 1.2% to 1.5% | 1.6% | 1.5% |
| Ex-Fresh Food - Y/Y | 1.7% | 1.6% to 1.8% | 1.8% | 2.0% |
| Ex-Fresh Food & Energy - Y/Y | 2.3% | 2.3% to 2.4% | 2.5% | 2.4% |
Highlights
Consumer inflation in Tokyo, a leading indicator of the national trend, continues moderating in the core measure in February as energy prices were pulled down by renewed subsidies for electricity and natural gas use in the first three months of the year aimed at reducing heating costs. Energy prices were already down in January after the government scrapped a decades-old gasoline surcharge at the end of December.
Processed food price markups continue to ease now that domestic rice supply shortages have been resolved. The prices for fresh vegetables and fruits are down after surging in early 2025 on poor crops of 2024.
The core measure (excluding fresh food) posted a 16-month low of 1.8% increase on the year after the annual rate decelerated to 2.0% in January from 2.3% in December. The annual rate of the total CPI edged up to 1.6% after slowing to 1.5% in January, the lowest in about four years, from 2.0% in December. The annual rate for the core-core CPI (excluding fresh food and energy) also picked up to 2.5% from 2.4% as it is not affected by energy subsidies.
Two of the key inflation measures are now below the Bank of Japan's 2% price stability target but that was already projected by the bank in October as the rice price markups had eased after a spike in early 2025.
The bank repeated its quarterly Outlook Report in January that in the second half of its projection period (fiscal 2025 through fiscal 2027), underlying CPI inflation and the rate of increase in the core CPI should increase gradually and will be at a level that is generally consistent with the price stability target.
Details:
Japan Feb Tokyo core CPI (ex-fresh food) +1.8% y/y (Jan +2.0%), median forecast +1.7% (range: +1.6% to +1.8%)
Japan Feb Tokyo core CPI annual rate at 1.8%, lowest since 1.8% in Oct 2024
Japan Feb Tokyo total CPI +1.6% y/y (Jan +1.5%); median forecast +1.4% (range: +1.2% to +1.5%)
Japan Feb Tokyo core-core CPI (ex-fresh food, energy) +2.5% y/y (Jan +2.4%); median forecast +2.3% (range: +2.3% to +2.4%)
Japan Feb Tokyo CPI y/y slows further on renewed subsidies for electricity and natural gas Q1 use, elimination of gasoline surcharge at end-2025
Japan Feb Tokyo total CPI annual rate edges up to 1.6% from Jan's 1.5% as fresh food price drop shrinks to -3.9% from -7.4%
Japan Feb Tokyo CPI: energy -9.2% y/y (-0.47 point contribution), vs. -4.2% (-0.22 point) in Jan
Japan Feb Tokyo CPI: processed food +5.5% (+1.28 point) vs. +5.6% (+1.30 point) in Jan
Japan Feb Tokyo CPI: regular rice price remains high at +17.7% (+0.09 point on total CPI) y/y, down from +25.5% (+0.13 point) in Jan
Market Consensus Before Announcement
Consumer inflation in Tokyo, a leading indicator of nationwide price trends, is expected to fall below the Bank of Japan’s closely watched 2 percent target in two of the key measures in February, driven mainly by government subsidies aimed at easing the burden of electricity and city gas charges.
In addition, slowing food and energy prices, along with softer retail prices at supermarkets and other stores, are seen putting downward pressure on Tokyo’s consumer price index for a fourth consecutive month in February.
As a result, the core CPI, which excludes fresh food, is forecast to rise 1.7 percent on the year in February, easing from 2.0 percent in January and marking the first drop below the 2 percent level since October 2024. That would also be the slowest increase since March 2022, when it rose 0.9 percent.
Elsewhere, the headline CPI is seen slowing to 1.4 percent, the lowest level in nearly four years, from 1.5 percent a month earlier. The core-core index, which excludes fresh food and energy, is expected to rise 2.3 percent, edging down from a 2.4 percent increase in January. All three measures have remained below 3 percent since June after retreating from earlier peaks.
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).
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.