Japan Inflation (Core, ann. var. %, aop)

Inflation comes in at highest rate since 1981 in January

Inflation came in at 4.3% in January, which was up from December’s 4.0%. January’s result was the highest inflation rate since 1981.

The trend pointed up, with annual average inflation coming in at 2.8% in January (December: 2.5%). Meanwhile, core inflation rose to 4.2% in January, from the previous month’s 4.0%.

Finally, consumer prices increased 0.52% in January over the previous month, accelerating from the 0.18% rise recorded in December. January’s uptick was the highest reading since October 2022.

Cost-push factors—a slumping yen and elevated commodity prices—helped keep inflation elevated in January. These factors are expected to recede this year. Along with new measures announced in the supplementary budget, this should lead inflation to gradually fall until it dips below the BoJ’s 2.0% target in Q3 2023.

That said, there were signs that price pressures were beginning to broaden. Inflation excluding fresh food and energy prices rose for the 12th consecutive month to 3.2% in January, from 3.0% in December. If this continues and wage growth begins to pick up, that could lead to higher price pressures becoming sustained—a primary goal of BoJ Governor Kuroda, whose term expires in April. The shunto wage negotiations—which began last month—will be a key factor to watch. Economists expect them to result in annual wage growth which slightly undershoots the 3% the BoJ says is needed for inflation to consistently hit the 2% target.