Cooling Tokyo Inflation Still Exceeds BOJ Target for Second Consecutive Month

According to recent data, Tokyo’s core consumer inflation slowed in March for a second month. This slowdown is mainly due to the government’s steps to curb utility costs. However, the core inflation remains well above the central bank’s 2% target, highlighting broadening price pressures in the world’s third-largest economy. Moreover, a separate index indicating that government subsidies’ effect year pace since 1990 suggests that the effect of government subsidies to curb utility bills did little to stem the rising cost of living for households. This is a challenge for the incoming Bank of Japan Governor Kazuo Ueda, as uncertainties cloud Japan’s fragile economy.

On the other hand, factory output rebounded in February, but some analysts warn of mounting downside risks as slumping global demand for technology goods hits the country’s exports. With export volumes on track to record the sharpest contraction since the initial outbreak of the pandemic, it is more likely than not that GDP will have contracted in the first quarter, and they think it will do so again in Q2.

Core consumer prices in Tokyo rose 3.2% in March from a year earlier, compared with a median market forecast for a 3.1% gain. The pace of increase slowed from a 3.3% gain in February and a nearly 42-year high of 4.3% hit in January, due mainly to the effect of government subsidies to curb utility bills. However, an index for Tokyo stripping away fresh food and energy prices, which the BOJ closely watches as a gauge of demand-side price pressures, was 3.4% higher in March than a year earlier and faster than a 3.1% rise in February.

For now, households appear to be weathering the pain. Retail sales rose 6.6% in February from a year earlier, beating market forecasts for a 5.8% gain on solid sales at car dealers and department stores. However, the prices of more than 5,100 food items will rise in April, and grocery price hikes will likely persist until around October, according to Teikoku Databank.

Key Takeaway:

While inflation has cooled for a second month in Tokyo, it remains well above the central bank’s 2% target; high factory output rebounded in February, broadening price pressures in the country’s rising global demand for technology goods, and factory output rebounded in February. However, some analysts warn of mounting downside risks. Households appear to be weathering the pain, but the prices of more than 5,100 food items are set to rise in April, and grocery price hikes are likely to persist until around October.

Related Facts:

1. Core consumer inflation in Japan’s capital Tokyo slowed in March for a second month.
2. The core inflation remains well above the central bank’s 2% target.
3. An index for Tokyo stripping away fresh food and energy prices rose at the fastest year-on-year pace since 1990.
4. Retail sales rose 6.6% in February from a year earlier, beating market forecasts for a 5.8% gain.
5. The prices of more than 5,100 food items are set to rise in April.

Conclusion:

The slowdown in Tokyo’s core consumer inflation for a second month is apparent, but the inflation still exceeds the BOJ target, highlighting broadening price pressures in the fragile economy. Although factory output rebounded in February, some analysts warn of mounting downside risks as slumping global demand for technology goods hits the country’s exports. Grocery price hikes will likely persist until around October, but households appear to be weathering the pain for now.