| Consensus | Consensus Range | Actual | Previous | |
| CPI - Y/Y | 1.4% | 1.2% to 1.6% | 1.5% | 1.3% |
| Ex-Fresh Food - Y/Y | 1.6% | 1.5% to 1.9% | 1.8% | 1.6% |
| Ex-Fresh Food & Energy - Y/Y | 2.4% | 2.3% to 2.5% | 2.4% | 2.5% |
Highlights
Japan's consumer inflation unexpectedly ticked up in March in two of three key readings as the Iran war drove the national average retail gasoline price to a record high in mid-month, just before renewed subsidies took effect to cap fuel price markups. However, both the core (excluding fresh food) and total CPI remained tame under the Bank of Japan target to guide inflation to around 2% in the long run.
The upward pressure from gasoline prices overwhelmed the mild downward effect of subsidies for electricity that had been in place for usage from January through March (bill payments through April and May). Processed food markups have been moderating in tandem with fading effects of domestic rice supply shortages but the gasoline spike impact was much more powerful in March.
The year-on-year increase in the core CPI (excluding fresh food) accelerated to 1.8% after having eased to a nearly four-year low of 1.6% in February from 2.0% in January. The annual rate of the total CPI rose to 1.5% after moderating to 1.3% the prior month and decelerating sharply to 1.5% in January. Underlying inflation, as measured by the core-core CPI that excludes both fresh food and energy, stood at 2.4%, as expected, following an unexpected slip to 2.5% in February from 2.6% the previous month.
Meantime, the BOJ now releases its own core CPI measure that excludes fiscal measures and other one-off factors like mobile phone charge discounts, in hopes of keeping inflation expectations around 2% alive that would allow the bank to continue raising interest rates gradually as part of its policy normalization.
Details:
Japan March core CPI (excluding fresh food) +1.8% y/y, 55th straight rise (Feb +1.6%); median forecast +1.6%
Japan March total CPI +1.5% y/y, 55th straight rise (Feb +1.3%); median forecast +1.4%
Japan March core-core CPI (ex-fresh food, energy) +2.4% y/y, 48th straight rise (Feb +2.5%); median forecast +2.4%
Japan March CPI: processed food +5.2% (+1.27 point) vs. +5.7% (+1.39 pt) in Feb
Japan March CPI: energy prices -5.7% y/y (-0.45 point) vs. -9.1% (-0.71 pt) in Feb
Japan March CPI services (ex-owners' equivalent rent) +1.8% vs. +1.8% in Feb; goods (ex-fresh food) +2.1% vs. +1.7% in Feb
Japan fiscal 2025 core CPI +2.7% vs. +2.7% in fiscal 2024, +2.8% in fiscal 2023, +3.0% in fiscal 2022, +0.1% in fiscal 2021, -0.4% in fiscal 2020
Japan fiscal 2025 inflation remains elevated as rice price markups still close to +50% on year, mobile comms fee discount base-year effect fades
Market Consensus Before Announcement
Japan’s nationwide consumer price index is expected to be little changed across all three major measures in March from the previous month. Gains in energy prices driven by tensions in the Middle East were partly offset by the government’s introduction of new gasoline subsidies from mid-March, helping to cushion the impact of higher international oil prices.
CPI was also weighed down by a slowdown in food price inflation amid fading base effects. Reflecting the trend in Tokyo CPI data released on March 31, the nationwide core CPI, which excludes fresh food, is expected to rise 1.6 percent on the year in March, unchanged from a month earlier. This would mark a second straight reading below the Bank of Japan’s 2.0 percent inflation target and the first consecutive sub-2 percent reading in four years, last seen in February and March 2022.
In Tokyo, both core and overall CPI fell below the 2 percent mark as energy prices were capped by government subsidies aimed at lowering electricity bills during the peak heating season, offsetting the impact of a spike in gasoline prices caused by rising geopolitical tensions in the Middle East.
The two other key nationwide CPI measures are also expected to be little changed. Overall CPI is projected to rise 1.4 percent on the year in March after a 1.3 percent gain in February. Core-core CPI, which excludes both fresh food and energy, is seen edging down to 2.4 percent from 2.5 percent the previous month.
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.