Japan’s CPI inflation, excluding fresh food, likely decelerated further in May

Japan’s CPI inflation, excluding fresh food, is likely to have decelerated further in May. The nationwide CPI is likely to have decelerated to 0.4 percent year-on-year from April’s 0.3 percent y/y, said Societe Generale in a research report.

Impact of decline in energy prices from the start of 2016 continues to be there that exerts downward pressure on core CPI. The CPI, excluding food and energy, is expected to have accelerated 0.6 percent, a slowdown from 0.7 percent in April.

This further confirms a slowdown from the peak of 0.9 percent in November 2015. Weak consumption patterns are exerting downward pressure on price levels, given the longer-than-expected after effect of 2014 consumption tax hike, along with a rise in uncertainty regarding global economy.

During its June monetary policy meeting, the Bank of Japan cut its assessment of price levels to “year-on-year rate of change in the CPI is likely to be slightly negative or about 0 percent for the time being”. The BoJ is highly likely to revise its FY 2016 core CPI forecast downwards from the present 0.5 percent in its next Outlook Report that will be released during its July monetary policy meeting.

“We expect core CPI to be -0.1 percent YoY for FY 2016,” added Societe Generale.

Meanwhile, the June Tokyo CPI, excluding fresh food, is expected to have accelerated slightly to -0.4 percent. This is mostly because of rise in energy prices.