Societe Generale economists Reo Sakida and Jin Kenzaki analyze June Tokyo Consumer Price Index (CPI), noting that overall inflation dynamics in Japan changed little from May despite a modest upside surprise in headline and core readings. They highlight that non-fresh food is on a disinflationary path but likely near a bottom, while service inflation remains firm and Tankan survey expectations will be crucial into 2H.

Tokyo CPI shows steady inflation signals

"Overall: Inflation dynamics changed little from the previous month. The increase from previous month largely reflects the fading impact of Tokyo’s water fee waiver program and therefore does not signal broader nationwide inflation pressure. Non-fresh food remains on a disinflationary path, although the trough appears close."

"Into 2H, negative base effects begin to fade, adding some upward pressure."

"Food: Food prices continue to decline, but survey data suggest inflationary pressures are building for the late summer months. As negative base effects gradually fade into 2H, food inflation appears close to bottoming."

"In addition, the latest June survey from Teikoku Databank shows an upward shift in planned food price revisions. Higher energy costs have yet to fully feed through to consumer prices, but that is likely to change in late summer as producers begin passing those costs on."

"Nevertheless, service inflation should remain firm, supported by solid fundamentals. Strong wage negotiation results continue to support wage growth, while service consumption has remained resilient."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)