Japan: Core inflation still on uptrend – Nomura

The analysis team at Nomura notes that the March all-Japan core CPI was 0.2% y-y, flat from February and in line with the consensus forecast.

Key Quotes

“The breakdown shows an ongoing marked upward contribution from energy prices (energy prices boosted the core CPI by +0.17ppt more than in February), but this was cancelled out by weakness in the core portion.”

“The all-Japan core CPI was -0.3%, which is a wider margin of decline than February's -0.1%. The larger decline in the core CPI itself, however, was no major surprise, having to some extent been flagged in the Tokyo area data for February.”

“April Tokyo core CPI above market consensus forecast

• The April Tokyo core CPI (general, excluding fresh food) was -0.1% y-y, above the consensus (Bloomberg survey median) forecast of -0.2% and a substantial improvement from March's -0.4%. The breakdown shows that the energy and core foods portions pushed up the core CPI. In addition, mobile phone prices, which contributed substantially to the decline in March, pushed up y-y growth in the April core CPI by 0.08ppt.
• At the same time, the Tokyo core CPI, which excludes energy and food (except alcoholic beverages) was -0.4% in April, maintaining the pace of decline seen in March (-0.4%). Price movements for durables and other goods varied by category, but overall growth remained sluggish. Although we have noted the possibility of a gradual lifting of downward pressure on prices caused by the lingering effect of past yen appreciation, we also note the risk that the timing of this could be put back slightly.”

“Note near-term risk of delays in core recovery

We think the primary takeaway from today's data release is that the Tokyo core CPI remained weak despite the various price hikes since the beginning of 2017. Looking ahead, we expect a continued uptrend in core inflation on the positive contribution from energy prices and a gradual recovery in the core portion. We advise caution, however, as we see a risk that momentum for core inflation could slow as the recovery in the core portion is put back slightly.”