Fundamentals Update: Japan Inflation

Japan Inflation

Fundamentals Update as at 20 November 2013 by Lorenzo Beriozza

Upward pressures on CPI from energy inflation have started to soften, suggesting that the YoY CPI inflation rate should soften around the end of this year despite continuing modest price hikes for food products. Wage-related indicators remain sluggish. Without a material rise in base pay, the April 2014 consumption tax hike would lead to a downshift for the underlying inflation rate. The consensus is that the BoJ is likely to decide on additional monetary easing as early as February next year as long as the central bank sticks to its plan to achieve its +2% CPI inflation by mid-2015.

  1. Core CPI excluding fresh food slowed from +0.8% YoY in August to +0.7% YoY in September as gasoline prices fell.
  2. CGPI (corporate goods price index) rose 0.1% MoM in October to mark a fifth successive increase, but the pace decelerated (September: +0.2% MoM). The average input-output margin for manufacturers improved as prices of raw materials fell.
  3. A number of recent media reports point to price cuts for various energy-related products during the October–December quarter. The YoY core CPI inflation rate is expected to peak out towards the end of this year. Given that global commodity prices have softened and domestic wages remain sluggish, the risk is on the downside for the near-term CPI forecast.
  4. Wage-related indicators remain sluggish. Monthly Labor Survey data for September did show a 0.1% YoY increase in total cash earnings after declines in each of the previous two months, but scheduled pay continued to fall at the aggregate level (-0.3% YoY), and rose by just 0.1% YoY for full-time workers (for whom scheduled work hours are constant).
  5. Unless base pay jumps after the forthcoming spring wage negotiation, which is deemed unlikely, the underlying inflation trend should get lower following the April 2014 consumption tax hike. CPI linkers point to around +1% of underlying (medium-term) inflation, but this seems too high.
  6. The BoJ is expected to deploy additional easing measures as early as February.
Source: Credit Suisse
2017-05-04T20:44:27+00:00

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