Economic Release
JP: Tokyo CPI
Date: March 27, 2025 06:30 PM CT
| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| CPI - Y/Y | 2.8% | 2.7% to 3.0% | 2.9% | 2.9% | 2.8% |
| Ex-Fresh Food - Y/Y | 2.2% | 2.2% to 2.3% | 2.4% | 2.2% | |
| Ex-Fresh Food & Energy - Y/Y | 2.0% | 1.9% to 2.0% | 2.2% | 1.9% |
Highlights
Consumer inflation in Tokyo, the leading indicator of the national average, unexpectedly nudged up in two of the three key readings in March, driven by faster y/y rises in the prices for processed food on lingering rice shortages, heaters amid severe winter weather and hotels due to an influx of visitors from overseas who are taking advantage of the weak yen. Those factors more than offset the slight price-cooling impact of temporary utility subsidies aimed at lowering electricity and natural gas bills during the peak heating season from January to March (bills paid from February to April).
The core reading (excluding fresh food) posted a 2.4% increase on year, accelerating from +2.2% in February and +2.5% in January. The year-on-year rise in the total CPI also inched up to 2.9% after decelerating to 2.8% (revised down from 2.9%) in February and surging to a 22-month high of 3.4% at the start of the year. The annual rate for the core-core CPI (excluding fresh food and energy) rose to 2.2% from 1.9% seen the previous two months.
Energy costs rose 6.1% on year (+6.9% in the prior month), adding 0.30 percentage point to the total CPI (vs. +0.34 point), while processed food prices gained 5.6% (vs. +5.0%), lifting the index by a much wider 1.28 points (vs. +1.15 points).
The Bank of Japan, which expects inflation to be anchored around its 2% target by early 2026, is on course for at least two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process begun in March 2024 after more than a decade of large-scale easing. The BOJ's nine-member board stood past last week after voting 8 to 1 to raise the policy interest rate by another 25 basis points (0.25 percentage point) to 0.5% in January.
The core reading (excluding fresh food) posted a 2.4% increase on year, accelerating from +2.2% in February and +2.5% in January. The year-on-year rise in the total CPI also inched up to 2.9% after decelerating to 2.8% (revised down from 2.9%) in February and surging to a 22-month high of 3.4% at the start of the year. The annual rate for the core-core CPI (excluding fresh food and energy) rose to 2.2% from 1.9% seen the previous two months.
Energy costs rose 6.1% on year (+6.9% in the prior month), adding 0.30 percentage point to the total CPI (vs. +0.34 point), while processed food prices gained 5.6% (vs. +5.0%), lifting the index by a much wider 1.28 points (vs. +1.15 points).
The Bank of Japan, which expects inflation to be anchored around its 2% target by early 2026, is on course for at least two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process begun in March 2024 after more than a decade of large-scale easing. The BOJ's nine-member board stood past last week after voting 8 to 1 to raise the policy interest rate by another 25 basis points (0.25 percentage point) to 0.5% in January.
Market Consensus Before Announcement
Consumer inflation in Tokyo, the leading indicator of the national average, is expected to be little changed in March from the pace in February, when two of the three key measures eased substantially. CPI inflation is receiving a temporary break from utility subsidies aimed at capping energy costs during the peak heating season from January to March (bills paid from February to April). By contrast, processed food prices remain elevated in the aftermath of protracted domestic rice supply shortages and high import costs caused by the weak yen.
The core reading (excluding fresh food) is forecast to post a 2.2% increase on year after decelerating to 2.2% in February from 2.5% in January. The year-on-year rise in the total CPI is expected to ease slightly to 2.8% after slowing to 2.9% in February and surging to a 22-month high of 3.4% at the start of the year. The annual rate for the core-core CPI (excluding fresh food and energy) is estimated at 2.0%, up from 1.9% the previous month.
The Bank of Japan, which expects inflation to be anchored around its 2% target by early 2026, is believed to be on course for at least two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process begun in March 2024 after more than a decade of large-scale easing.
Last week the BOJ’s nine-member board voted unanimously to maintain the target for overnight interest rate at 0.5%, as widely expected, after voting 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in January in a third rate hike during the current normalization process that began in March 2024. Members are closely monitoring whether expected high wage increases by major firms will spread to smaller firms in fiscal 2025 starting on April 1 at a time when real wages are falling, which could hurt consumption further and generate deflationary pressures.
The core reading (excluding fresh food) is forecast to post a 2.2% increase on year after decelerating to 2.2% in February from 2.5% in January. The year-on-year rise in the total CPI is expected to ease slightly to 2.8% after slowing to 2.9% in February and surging to a 22-month high of 3.4% at the start of the year. The annual rate for the core-core CPI (excluding fresh food and energy) is estimated at 2.0%, up from 1.9% the previous month.
The Bank of Japan, which expects inflation to be anchored around its 2% target by early 2026, is believed to be on course for at least two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process begun in March 2024 after more than a decade of large-scale easing.
Last week the BOJ’s nine-member board voted unanimously to maintain the target for overnight interest rate at 0.5%, as widely expected, after voting 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in January in a third rate hike during the current normalization process that began in March 2024. Members are closely monitoring whether expected high wage increases by major firms will spread to smaller firms in fiscal 2025 starting on April 1 at a time when real wages are falling, which could hurt consumption further and generate deflationary pressures.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Annual changes in the CPI represent the rate of inflation.
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
Description
The CPI has been in the spotlight as Japan struggled to make its way out of deflation. It is now closely monitored because the recent spike in energy and commodity markets and supply chain constraints during the global pandemic boosted Japan’s inflation rate to the highest in over four decades in 2022.
The report tracks changes in the price of a basket of goods and services that a typical Japanese household might purchase. The preferred measure is the year over year percent change. Markets will typically pay more attention to the core measure that excludes only fresh food because volatile food prices can distort overall CPI. A second core measure that excludes energy as well is also available. As the most important inflation indicator, the CPI data are closely monitored by the Bank of Japan. Rising consumer prices may prompt the BoJ to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the yen more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the yen.
An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to government securities. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
The report tracks changes in the price of a basket of goods and services that a typical Japanese household might purchase. The preferred measure is the year over year percent change. Markets will typically pay more attention to the core measure that excludes only fresh food because volatile food prices can distort overall CPI. A second core measure that excludes energy as well is also available. As the most important inflation indicator, the CPI data are closely monitored by the Bank of Japan. Rising consumer prices may prompt the BoJ to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the yen more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the yen.
An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to government securities. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
