Japan: Deflation moderates amid higher tobacco taxes
November 26, 2010
In October, the core consumer price index, excluding fresh food, added 0.4% over the previous month. The reading came in above the previous month's flat result but was in line with market expectations. The monthly price hike was mostly fueled by higher prices for cigarettes (+38.6% month-on-month) as a result of an increase in tobacco taxes. Owing to the high monthly reading, annual core inflation jumped from minus 1.1% in September to minus 0.6% in October. Meanwhile, the overall consumer price index also recorded a 0.4% month-on-month increase, which drove annual inflation to 0.2%. The reading marked the first time overall consumer inflation reached positive territory since December 2008. The Bank of Japan (BoJ) projects core consumer prices to drop an average of 0.4% in the current fiscal year, which ends in March 2011. In the next fiscal year, the Bank of Japan sees the economy edging out of deflation, with core consumer rising by 0.1% before adding a more meaningful 0.6% in fiscal 2012. However, even in 2012 inflation will remain below the 1.0% considered price stability by the BoJ.