Japan: Inflation accelerates in September from August
Latest reading: Consumer prices increased 2.9% on a year-on-year basis in September, following a 2.7% rise in the previous month.
Relative to the previous month’s data, there were higher price pressures for energy (+2.3% on a year-on-year basis vs -3.3% in August). In contrast, price pressures reduced for food (+6.7% vs +7.2% in August) and housing (+1.0% vs +1.1% in August) in September. Finally, the variation in transportation prices was the same as in the prior month (+3.0% in September and August).
The rebound in energy prices was largely driven by a statistical base effect—energy inflation dropped sharply in September 2024 as a result of government measures to cap electricity and gas costs.
Meanwhile, core consumer prices rose 2.9% on a year-on-year basis in September, following a 2.7% rise in the prior month. The print matched market expectations.
Finally, consumer prices were down 0.07% in September in month-on-month terms, following a 0.16% rise in the prior month.
Outlook: Our panelists expect inflation to cool for the third consecutive quarter in Q4, reaching the lowest level since Q1 2022, when Russia’s invasion of Ukraine sent energy prices surging and the economic reopening from the Covid pandemic caused demand to spike. Inflation should ease further in Q1 2026, before settling just below the Bank of Japan’s 2.0% target.
The main drivers of this downtrend include higher interest rates, a stronger yen and tepid oil prices. Still, a repeat of the deflation that plagued Japan for decades before the Covid pandemic remains unlikely.
The policies of new Prime Minister Sanae Takaichi will be key to watch. Takaichi has promised to tackle Japan’s cost-of-living crisis, which she labeled in a recent speech as the government’s “top priority”. Promised measures include cuts to the gasoline tax, reductions in electricity and gas costs during winter, and making high-school tuition free from April.
Panelist insight: ING’s Min Joo Kang said:
“Underlying inflationary pressure is still firm. Other data indicate that firm wage growth is boosting private spending. In addition, the weak JPY is likely to add more pressure in the near term. Thus, this will support the BoJ’s rate hike in the coming months.”