Japan: Core inflation accelerates to 0.8% - Nomura

Analysts at Nomura note that the Tokyo core CPI (all items, ex fresh food) for July 2018 was up 0.8% y-y, 0.1ppt higher than the June inflation reading and above the market consensus forecast (Bloomberg survey median) of +0.7%.

Key Quotes

“The Tokyo area CPI excluding fresh food and energy (the BOJ's preferred measure of core-core CPI) rose by 0.5% y-y in July, a pick-up of 0.1ppt over the June reading.”

“Looking at the breakdown of core CPI growth, while the CPI was pushed down by energy and by overseas package tours, which pushed up inflation in June, a wide range of items pushed up the core CPI overall, with noteworthy contributions coming from food less fresh food (core food), apparel, and imputed rents.”

“Overall, however, we think the wide-ranging rise in prices in July may indicate slightly stronger price hikes than we had been expecting. This may reflect a slight rebound in consumer spending in Apr-Jun from a weaker Jan-Mar.”

“Supply-side consumption statistics since April have generally shown high growth, although this may be attributable in part to a rebound from Jan-Mar, when adverse weather held down consumer spending.”

“In terms of core CPI overall, while core CPI inflation is being pushed up by a growing contribution from higher energy prices, we expect the core-core portion to remain sluggish, because we expect a lingering impact from the gains made by the yen at the end of 2017 and the beginning of 2018 and consumer spending has been on the weak side.”

“We expect prices for consumer durables to remain somewhat weak, but we note the possibility that inflation could swing upward, particularly in the core-core component.”