Japan: Core inflation comes in at highest level since March 2015 in April
May 20, 2022
Core consumer prices—which exclude fresh food—increased 0.20% from the previous month in April, a smaller increase than March's 0.40% rise. April's result marked the weakest reading since January.
Core inflation broke the Bank of Japan’s (BOJ) inflation target of 2.0%: it came in at 2.1% in April, up from March’s 0.8%. April's reading marked the highest inflation rate since March 2015 and was slightly above market expectations. However, the acceleration was largely due to a statistical effect. Phone fees have been down year-on-year in past months, due to government legislation. But because the legislation was passed more than a year ago, it is no longer causing phone fees to fall as sharply. As a result, the fall in phone fees year-on-year has become less acute, pushing up the final print by 1.0 percentage points.
Meanwhile, the trend pointed up, with annual average inflation coming in at 2.1% in April (March: 0.8%). Finally, consumer price inflation rose to 2.5% in April, from March’s 1.2%.
The jump in core inflation was largely due to a statistical effect. Evidence of demand-push inflation remains remote. As a result, prospects for second-round effects—where higher prices push up wages which further push up prices—and therefore a sustained ratcheting up of inflation to above the BOJ’s 2.0% target remains unlikely.
Going forward into the rest of Q2, our panelists expect inflation to remain around current levels, before easing in later quarters. Government measures, such as gasoline price caps, will offset the effect of rising demand as the economy reopens following the easing of the Omicron wave that struck earlier this year.