Japanese inflation likely to have remained flat in October

Japan’s inflation data for the month of October is set to release tomorrow. According to a DBS Bank research report, the nationwide CPI is likely to have remained flat at around 0.3 percent year-on-year in October. The 2 percentage point hike in consumption tax failed to lift inflation in the prior month. This was because its boosting effect on prices was greatly countered by a free pre-school education program that was introduced by the government.

“To reflect these technical distortions, we recently have lowered the annual CPI inflation forecasts to 0.5 percent for 2019 and 0.7 percent for 2020. On the other hand, we maintain a conservative view on the short-term growth outlook”, said DBS Bank.

The disrupting effect of consumption tax hike on domestic demand seems to be bigger than expected. The nation’s four major department store operators saw a sharp fall of 20 percent year-on-year in their sales in October. Falling consumption and still soft exports imply that GDP figures would disappoint in the fourth quarter of 2019, added DBS Bank.