Japan: analysis of latest inflation figures
Published 6 May 2014
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0.1 Summary
Japanese core CPI rate in March 2014 remains unchanged at 1.3%. But the April 2014 figure for the Tokyo region (a leading indicator for the rest of Japan) increases to 2.7% reflecting this month’s VAT increase.
0.2 Detail
Japan released their monthly inflation statistics today. These show that core CPI (inflation excluding fresh food) - the most widely quoted measure - was unchanged at 1.3% during March 2014. This was largely in line with market expectations. The annual rate of headline inflation was 1.6% while ‘core-core’ inflation which excludes both food and energy came in at 0.7%. However, the focus today was on preliminary April 2014 data for the Tokyo region. This is seen as a leading indicator for the rest of the nation. Core inflation increased by 2% to 2.7%. This change largely reflects the increase in Japanese VAT (from 5% to 8%) which came into effect at the beginning of this month. The Bank of Japan (BOJ) has estimated that the consumption tax rise will account for 1.7% of the April inflation figure. This means that that the underlying rate of change is around 1% which reflects higher energy prices, non durable commodities and accommodation costs which all rose during the period.
0.3 Comment
The BOJ will release their Economic Outlook Report next week. The CPI figures for Tokyo confirm that the VAT increase is resulting into higher prices rather than retailers accepting lower margins as some had feared. As such, this is likely to reduce calls by analysts for an immediate expansion in the level of monetary easing. Some are drawing comparisons to the last time nationwide core inflation rose by so much - over 20 years ago - but Japan’s economy was in a very different position then.
0.4 Disclaimer
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