Japan Inflation


April result marks an end to over two years of deflation

In April, the core consumer price index, which excludes volatile fresh food prices, rose a seasonally adjusted 0.2% over the previous month, matching March's reading. As a result, annual core inflation turned positive in April, jumping from minus 0.1% in March to plus 0.6%, which represents the first positive reading since February 2009. The April figure was broadly expected by the market, as the price increase partially reflected a fading base effect related to lower tuition fees in 2010. Meanwhile, the so-called core core inflation, which also excludes energy prices, recorded a flat reading over the previous month (March: -0.2% mom sa). The main drivers behind the monthly increase were higher prices for clothing and footwear, education, transportation and fuel. Meanwhile, food prices continued declining. In addition, annual overall inflation climbed 0.3% over March, breaking four consecutive months of flat readings and leaving annual average inflation at minus 0.3% (March: -0.4% yoy). Analysts acknowledged that recent gains in prices were spurred by higher commodity prices and shortages due to the Tohoku earthquake. In addition, some participants are skeptical about the end of deflation, as the underlying downward pressure on prices persists.

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