Japan: Inflation still weak – Nomura

In January 2018, the all-Japan core CPI (all items, excluding fresh food) rose 0.9% y-y, unchanged from December 2017, notes the research team at Nomura.

Key Quotes

“The January all-Japan core CPI (ex energy and food but including alcohol) rose by 0.1%, also unchanged from December. While core inflation beat the market consensus forecast (Bloomberg survey median) by 0.1ppt, this marks a weak result for both core and core inflation.”

“While mobile phone fees had a 0.02ppt positive y-y impact on January core inflation calculation owing to a rebound from the decline in January 2017, energy prices (including gasoline and kerosene) continued to have a negative impact.”

“From January 2018, the CPI includes tobacco vaporizers, MVNO phone charges, and SIM-free handsets for the first time, but as we had expected, this had little impact on January inflation.”

“We forecast an uptrend in inflation heading into summer

• Since 2017, we have expected to see a weakening of inflationary pressure as the impact from rising energy prices, which have been the main driver of inflation, declined from its peak. We see the January CPI results as consistent with this view. At the same time, inflation has remained on a gradual uptrend on a rise in the price of imported goods stemming from yen depreciation since 2016 and other cost increases.
• We think inflation rates will continue to fluctuate in response to the abovementioned downward pressure from energy prices and the boost from higher costs and import prices. We nevertheless expect the core inflation rate to rise to around 1.2% by the summer of 2018 owing to factors such as yen depreciation (we assume USD/JPY of 115 at end-2017 and 120 at end-2018), rising oil prices, and rising costs on such factors as higher wages stemming from increasing labor shortages.”