Japan: Core inflation fluctuating – Nomura

In December 2017, the all-Japan core CPI (all items, excluding fresh food) rose 0.9% y-y, unchanged from November and in line with the consensus forecast (Bloomberg survey median), notes the research team at Nomura.

Key Quotes

“The December all-Japan core CPI (ex energy and food but including alcohol) rose by 0.1%, also unchanged from November. Viewed by category, products such as golf clubs boosted inflation while prices for energy-related items such as electric power and fuel oil had a negative impact.”

“Tokyo inflation down in January

• The Tokyo core CPI (all items, ex fresh food) for January 2018 was up 0.7% y-y, 0.1ppt below the December reading and 0.1ppt below the market consensus forecast. The Tokyo core CPI (ex energy and food but including alcohol) rose 0.3% y-y, up 0.1ppt from December. While we saw gradual growth in a wide range of categories including overseas travel packages, energy prices continued to have a negative impact on inflation.
• From January 2018, the CPI includes tobacco vaporizers, MVNO phone charges, and SIM-free handsets for the first time, but as we had expected, this had little impact on January inflation.

“We forecast an uptrend in inflation heading into summer

• Since 2017, we have expected to see a weakening of inflationary pressure as the impact from rising energy prices, which have been the main driver of inflation, declined from its peak. We see these CPI results as consistent with this view. Core inflation, however, has remained on a gradual uptrend on a rise in the price of imported goods stemming from yen depreciation and other cost increases.
• While we think inflation rates will continue to fluctuate in response to positive and negative factors, we expect the core inflation rate to rise to around 1.2% by the summer of 2018 owing to factors such as yen depreciation, rising oil prices, and rising costs on such factors as higher wages stemming from increasing labor shortages.”