Japan Consumer Price Index

Core inflation excluding energy and food remains negative, falling by 0.3% in April

Published monthly by the Ministry of Internal Affairs and Communication. Updated to the month of April/May 2017 (published on May 26th, 2017).

Recent data trend:

In April 2017, BoJ's favorite inflation measure, CPI excluding fresh food and energy, remained unchanged from a year ago (YoY). The other alternative core CPI measure, CPI excluding food and energy, fell by 0.3% YoY. Despite the seemingly improving economic activities in Japan in the past 6 months, core inflation measures remain stubbornly close to zero.  

In the past four years, the BoJ tried to achieve a reflation in Japan by a multiple wave of aggressive quantitative easing with an aim of weakening the  yen, boosting corporate profits and strengthening economic activities. While the yen did weaken and corporate profits grew, it was apparently not enough to bring about a reflation in Japan. Despite the record low unemployment rate, the wage inflation is largely absent, except in the periphery of part-time workers' hourly wage. 

In our view, the aggressive easing by the BoJ in the past 4 years was not for naught. It did create a potential path to achieving reflation. The output gap in the economy is slightly positive by the estimation of the BoJ. If a favorable global economic environment could be maintained for another several years, a reflationary pressure could finally be built up within Japan. 

While such wishful thinking does seem fragile and passive, it is no longer prudent for the BoJ to attempt to further stimulate the economy in our view. The interest rate is already slightly negative, the BoJ is close to completely squeezing out liquidity in the bond market and its asset purchase program already include equity ETF purchase, a strategy that potentially exposes the BoJ to trillions of yen of losses once a downturn arrives. 

Brief overview of “Consumer Price Index”

Consumer Price Index (CPI) measures the weighted average price level of goods and services consumers pay. Its weights are determined by the spending pattern of household in a standard year, currently set at 2015. The Bank of Japan targets its core measure, CPI excluding fresh food. The US-styled core measure, CPI excluding food and energy, is also published in the official statistics release. The government currently does not officially publish trimmed CPI measures. Monthly CPI reports are published toward the end of the following month. The preliminary CPI report for Tokyo area is published one month in advance and it is often regarded as a leading indicator for the national CPI.

Since late 1990s, CPI in Japan has been on a very mild declining trend. Between 1998 and 2012, CPI fell by 3.9% or by 0.3% per year on average. Excluding food and energy, CPI declined by 6.4%, or by 0.6% per year on average in the same period. Japan had unusually lower CPI inflation than its global peers even prior to 1998. Between 1980 to 2000, average yearly inflation in Japan was 1.4%, sizably lower than the average of 3.6% in G7 countries.

For more information, visit the official government page

National CPI by item

Source: MIAC, JMA.

Source: MIAC, JMA.

CPI and Sub-Components

Source: MIAC, JMA.

The Next Release Date:  June 30th, 2017.

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