UBS Economics-Japan Economic Comment _Japan Inflation Tracker Noisy energ...-106858116.pdf

ab5March2024GlobalResearchandEvidenceLabJapanEconomicCommentJapanInflationTracker:NoisyenergypriceTokyocore-CPIinFebruaryspikedduetoenergynoiseasexpectedInTokyo'sCPIreportforFebruary,coreCPI(ex.freshfoods)inflationjumpedto2.5%y/yfrom1.8%inJanuaryduetoanendoflowerbaseeffectcausedbythegovernment'smassiveenergysubsidies.Themonth-on-monthchangeinseasonallyadjustedtermsroseonly0.1%,andoverthreemonthstheratewas1.5%annualized.ThisisinlinewithUBSestimatesandconsensus.Meanwhile,core-coreCPIexcludingenergyconfirmedfurtherdisinflation,deceleratingfromto3.1%from3.3%inJanuary,althoughitwasatenthhigherthanourexpectation.Inthemonth-on-monthgrowth,itrose0.1%,thesmallestincreasesinceApril2022,andthe3-monthchangewas1.9%.Afterexcludingenergynoise,core-coreCPIconfirmedsteadydisinflationAsexpected,andecelerationofcore-coreCPIthismonthwascausedbyfoods.Foodsinflationslowedto5.0%y/yfrom5.7%inJanuary,explainingalmosthalfofthecore-coreCPIdisinflation.Thisleavesthecontributionoffoodstocore-coreCPIat+1.1%ptoutof3.1%.Thevolatilehotelchargesacceleratedto33.3%y/yfrom26.9%inJanuary,andcontributiontocore-core-CPIwasupto36bpsfrom29bps.Meanwhile,packagetour,whichsurprisedusintheJanuarynationwideCPIreportlastweek,acceleratedto70.3%y/yfrom62.9%inJanuary,butthecontributiontoCPIwaslimited.UnderlyingserviceinflationshowedneitheraccelerationnordecelerationServicesrose2.1%y/y,unchangedfromlastmonthwiththeacceleratedhotelchargesoffsetbydeceleratedeatingout.Theinflationinthelattermoveswithimportedfoodsprice,anddeceleratedfromapeakat+8.2%inMarch2023and1.5%inJanuarytoonly1.0%.Afterexcludingthethreenoisyitems(hotelcharges,overseaspackagetour,andeatingout),serviceinflationwas1.1%y/y,stayingwithintherangeof1.1%to1.3%ofthepast8months.Meanwhile,inflationincore-goods(excludingenergy&foods)remainedhighat4.4%,remainingaround4%for12consecutivemonthsthankstoJPYdepreciation.Noisyenergyfluctuationthrough2024Giventoday'soutcome,weenvisagenationwidecore-CPIandcore-coreCPIinFebruary(dueon22March)at2.8%y/y(upfrom2.0%inJanuary)and3.3%(downfrom3.5%),respectively.Asflaggedlastweek,wehaveincorporatedlastweek'supsidesurprisefromoverseaspackagetour(around0.2%pt)intoournewCPIoutlook.Now,weenvisagecore-CPIandcore-coreCPIattheendof2024at1.8%(frompreviousestimateat1.6%)and1.8%(1.6%),respectively.WeassumecurrentenergysubsidieswillbeeffectiveuntilMay(forCPIcalculation)andhalvedinJune,thenterminateinJuly(butitcouldbeextended).Thisleavescore-CPIinflationat2.7%inJune.But,core-coreCPIinflationislikelytoslowto2.5%inJune,inourview.FirminginserviceinflationduetohigherwagegrowthisexpectedtobeseenfromQ3thisyear.OurforecastofcoreCPandcore-coreCPIatendof2025looksfor1.5%and1.7%,respectively.ThisreporthasbeenpreparedbyUBSSecuritiesJapanCo.,Ltd..ANALYSTCERTIFICATIONANDREQUIREDDISCLOSURES,includinginformationontheQuantitativeResearchReviewpublishedbyUBS,beginonpage10.EconomicsJapanGoKuriharaAssociateEconomistgo.kurihara@ubs.com+81-3-52933000MasamichiAdachiEconomistmasamichi.adachi@ubs.com+81-3-52086214JapanEconomicComment5March2024ab