| Consensus | Consensus Range | Actual | Previous | |
| CPI - Y/Y | 1.8% | 1.8% to 1.9% | 2.0% | 1.7% |
| Ex-Fresh Food - Y/Y | 1.8% | 1.7% to 1.8% | 1.9% | 1.6% |
| Ex-Fresh Food & Energy - Y/Y | 2.0% | 1.9% to 2.1% | 2.0% | 1.9% |
Highlights
Consumer inflation in Tokyo, a leading indicator of the national trend, continued to accelerate in July as overall energy prices posted a smaller drop and the recent trend of easing processed food price markups stalled. The protracted depreciation of the yen has made imports more expensive and retailers are reflecting higher labor, materials, packaging and transportation costs amid widespread worker shortages and the lingering Mideast conflict. All three key CPI measures remain at or just below the Bank of Japan’s 2% target as revived fuel subsides have capped gasoline and diesel prices nationwide. In addition to city water subsides, families in the Tokyo metropolitan area also benefit from free daycare services.
The core measure (excluding fresh food) rose 1.9% on year for the highest in six months after the annual rate edged up to 1.6% in June and slowing to 1.3% in May from 1.5% in April, both which were the lowest since 0.8% in March 2022. The core rate hit a recent peak at 3.6% in May 2025 when processed food price hikes were sharp in the aftermath of domestic rice shortages.
The annual rate of the total CPI also rose to a seven-month high of 2.0% after accelerating to 1.7% in June and easing to 1.4% in May from 1.5% in April. The year-on-year increase in the core-core CPI (excluding fresh food and energy), which is not directly impacted by fuel subsidies, ticked up further to 2.0% after rising to 1.9% in June and slowing to 1.6% in May from 1.9% previously.
The upward pressures from sustained wage hikes and the Iran war mitigated the price-cutting impact of nationwide fuel subsides in place since mid-March, which has capped the average regular gasoline price at ¥170 per liter. The CPI data showed gasoline prices fell 1.9% on the year (-1.3% in June) while the prices for propane were up 3.5% (+7.6%) and those for kerosene rose 11.8% (+11.0%), leading to a smaller 0.7% drop in overall energy prices in July, compared to a 2.3% fall in June.
There is a downward pressure from the Tokyo metropolitan government’s four-month summertime program to wave its base water charges but its initial impact has faded as the Tokyo prefecture had a similar scheme last summer.
For a clearer trend in consumer inflation, BOJ officials are closely monitoring the bank’s own core measures that exclude the effects of institutional factors (sales tax cuts, energy subsidies, etc.), which are pointing to an uptrend in underlying inflation above the bank’s 2% target.
The BOJ’s nine-member board is widely expected to stand pat at its next meeting on July 30-31 after it decided to raise the target for the overnight interest rate to 1% from 0.75% in a 7 to 1 vote in June, citing growing upside risks to inflation triggered by the Mideast conflict. The bank is expected to raise rates further by year-end. The rate hike in June is the fifth in the current cycle that began in March 2024 and part of the gradual process to unwind large-scale monetary easing that lasted for about a decade since April 2013.
Details:
Japan July Tokyo core CPI (ex-fresh food) +1.9% y/y (June +1.6%), median forecast +1.8% (range: +1.7% to +1.8%)
Japan July Tokyo total CPI +2.0% y/y (June +1.7%); median forecast +1.8% (range: +1.8% to +1.9%)
Japan July Tokyo core-core CPI (ex-fresh food, energy) +2.0% y/y (June +1.9%); median forecast +2.0% (range: +1.9% to +2.1%)
Japan July Tokyo inflation rate accelerates further as overall energy price drop shrinks, easing trend of processed food markups stalls
Japan July Tokyo CPI: energy -0.7% y/y (-0.04 point contribution) vs. -2.3% (-0.13 point) in June
Japan July Tokyo CPI: processed food +3.9% (+0.93 point) vs. +3.9% (+0.93 point) in June
Market Consensus Before Announcement
Tokyo’s consumer inflation is expected to accelerate in July as persistent upward price pressures, partly driven by prolonged geopolitical tensions in the Middle East and higher import costs, outweigh the government’s gasoline and utility subsidies as well as easing food prices, pushing the closely watched core consumer price index to its highest level in five months.
The CPI for Japan’s capital is a leading indicator of the national inflation trend and accelerating consumer inflation could create additional challenges for Prime Minister Sanae Takaichi’s government. Recent opinion polls conducted by several media organizations, including Japan’s public broadcaster NHK, showed a sharp decline in the government’s approval rating, with respondents citing the lack of effective anti-inflation measures as one of the main reasons for their disapproval.
All three major CPI measures are expected to accelerate after remaining below the Bank of Japan’s 2 percent inflation target for the previous three months, with price increases at supermarkets becoming more visible in July. The core CPI, which excludes fresh food, is forecast to rise 1.8 percent on the year in July, accelerating for a second consecutive month from 1.6 percent in June and reaching its highest level since February. The index had fallen to a more than three-year low of 1.3 percent in April before rebounding.
The core-core index, which excludes both fresh food and energy, is expected to rise 2.0 percent on the year in July, up from 1.9 percent in June. That would mark the first time the index rose back to the 2 percent mark since March. The headline CPI is forecast to rise 1.8 percent in July, compared with a 1.7% increase in June.
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.