| Consensus | Consensus Range | Previous | |
| CPI - Y/Y | 1.5% | 1.4% to 1.6% | 1.4% |
| Ex-Fresh Food - Y/Y | 1.4% | 1.4% to 1.5% | 1.4% |
| Ex-Fresh Food & Energy - Y/Y | 1.9% | 1.7% to 2.0% | 1.9% |
Market Consensus Before Announcement
Japan’s nationwide core consumer price index, which excludes fresh food, is expected to be little changed on the year in May, but is likely to remain below the Bank of Japan’s 2 percent inflation target for a fourth consecutive month.
Mirroring the trend seen in the Tokyo CPI released on May 29, consumer inflation continued to decelerate amid slower food price growth and the effects of government gasoline subsidies. In addition, the Tokyo government's policy of waiving basic water service charges during the summer, starting in May, as well as reductions in early childcare costs, including nursery school fees, contributed to a further easing in inflation.
These measures have helped restrain inflationary pressures even as geopolitical tensions in the Middle East have pushed up international oil and other commodity prices. The tensions have also weighed on the yen, raising import costs and creating upward pressure on domestic prices.
The core CPI is expected to be unchanged at a 1.4 percent rise on the year in May, while the overall CPI is forecast to rise 1.5 percent after increasing 1.4 percent in April. Core-core CPI, which excludes both fresh food and energy, is also expected to remain unchanged, rising 1.9 percent from a year earlier in May.
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.