Japan’s inflation likely to have remained flat at -0.4 pct in December

Japan’s headline inflation is expected to drop considerably as impact of fresh food price wanes. According to a Societe Generale research report, December nationwide CPI, excluding fresh food, is expected to have stayed at the November level of -0.4 percent year-on-year, marking ten straight months of negative growth. Producers are expected to have cut their prices to be competitive in the year-end sales season, thereby exerting downward pressure on prices.

But the labor market continues to be tight and pressure for wage rises is getting stronger, resulting in aggregate wages to begin rising. Wages are thus expected to rise in an environment where prices are stagnating that might in turn cause real wages to rise robustly and result in a rebound in domestic demand.

Prices are expected to rise again by April. But even with prices evidently beginning to rise again, the inflation level is likely to be around 0.7 percent by the end of this year that is still below the 2 percent target set by the central bank, stated Societe Generale.

“Nationwide CPI (ex. food and energy) will likely come in at 0.0 percent yoy, down from +0.1 percent yoy in November, and thus to stop growing for the first time since September 2016”, added Societe Generale.

Moreover, given the weather-related sharp rise in fresh food prices beginning to wane, nationwide headline inflation is expected to decline considerably to 0.0 percent in December from 0.5 percent year-on-year in November.

“We expect the Tokyo CPI (ex fresh food) to be at -0.4 percent yoy in January, an increase from the - 0.6 percent yoy observed in December, and to begin to show signs that the decline in core CPI is bottoming out”, said Societe Generale.