Core Inflation Higher Than Expected

Japan national May CPI data came in a touch stronger than forecast. The headline was in line at 3.2% y/y, but ex fresh food rose 3.2% y/y against a 3.1% forecast. The core core measure (which also excludes energy), rose to 4.3%y/y, a fresh high back to 1981. The market estimate for this print was 4.2%.

• The measure which strips out all food and energy was 2.6% y/y, versus 2.5% in Apr.
• Looking at the detail in y/y terms, we continued to see utilities soften, down -8.3% y/y (-3.8% in Apr). This was the main drag on the headline.
• 8 out of the 9 sub-indices saw firmer or the same y/y pace as April, with only household goods inflation easing back to 9.6% y/y from 10.0%.
• In m/m terms, the headline was flat seasonally adjusted, as was ex fresh food. Ex fresh food and energy was +0.3% m/m, down slightly from the 0.5% pace seen in the past 2 months.
• Goods inflation was -0.1%, while services ticked higher to 0.1% from flat.
• Overall, these prints clearly add to risks around an upside revision to the BoJ's inflation outlook in July. However, BoJ board rhetoric this week has pushed back against the need for any YCC tweaks at the July meeting.