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Free AccessMNI POLICY: Japan Oct CPI Drops 0.7%; Biggest Since March 2011
A weaker October core consumer price index was no great surprise to Bank of Japan officials who expected the inflation rate to continue in negative territory, MNI understands.
However, bank officials are paying attention to how weaker core CPI increases downward pressure on the medium to long-term expected inflation rate, and the growth expectations on which bank officials are focused.
The nationwide core CPI fell 0.7% y/y in October for the third straight month after -0.3% in September.
This posted the biggest fall since March 2011 when the index also fell 0.7%. The core CP fell 0.8% in February 2011.
Despite the continued weak core inflation, the BOJ is unlikely to adjust monetary policy to address the issue at present, concentrating instead on maintaining the stability of financial markets and ensuring corporate financing.
The BOJ has noted that the momentum for price stability target has been temporarily lost.
CORE-CORE CPI FALLS
October core-core CPI, excluding fresh food and energy items - the BOJ's preferred gauge of the underlying trend - fell 0.2% y/y in October after being unchanged in September.
The drop in inflation was mainly due to the decline in energy items and accommodation costs caused by the government's "Go To Travel" campaign, with government subsidies lowering overall costs at hotels.
The base-year effect of the consumption tax hike in 2019 was also behind weaker consumer prices.
The BOJ sees the travel cost impact as temporary but they still expect the key inflation rates to be negative for a while, weighed down by COVID-19 and the recent fall in oil prices which will lower utility costs with a time lag.
Overall accommodation prices fell 37.1% y/y in October, widening from a 30.0% fall in September. The negative contribution from accommodation widened to 0.45 percentage point from -0.35 pp in September.
SERVICES, EATING OUT LOWER
Service prices fell 1.0% y/y in October after being unchanged in September. The contribution turned negative to -0.37 pp in October from +0.01 pp in September. Prices for eating out, another key BOJ focus, slowed to +0.7% y/y in October from +2.8% in September.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.