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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.”