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Analysts at Nomura note that the April 2018 all-Japan core CPI (all items less fresh food) was +0.7% y-y, a slowdown of 0.2ppt versus March, and lower than the consensus forecast (Bloomberg survey median) of +0.8%.

Key Quotes

“The BOJ-version core core CPI (all items ex energy and fresh food) was +0.4% y-y, a slowdown of 0.1ppt versus the March reading, and somewhat weak, in our view.”

“A breakdown shows that energy-related categories continue to contribute to the slowdown in core CPI, and with growth moreover declining for such items as mobile phones and lodging, growth in overall core CPI is being dragged lower (with changes in contribution to y-y rise in core CPI versus March of -0.03ppt, -0.13ppt and -0.03ppt, respectively).”

“We think that the weak core inflation data for April stemmed from some highly volatile items, and on that basis we do not believe the inflation rate has started to decelerate.”

Forecasts for May Tokyo CPI

We forecast May Tokyo core CPI inflation to come in at +0.7% y-y, stronger than the April figure. Growth in energy prices looks to have slowed again in May, but we forecast the overall core inflation rate to have gained momentum due to cost increases as a result of the growing labor shortage and an expected lull in the slowdown in core food prices seen in March and April. We forecast CPI inflation excluding fresh food and energy (the BOJ’s version of core core CPI) of +0.4% y-y, up 0.1 ppt on April.”