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Japan CPI core eased to 3.1% in Jul, but core-core back at four decade high

Japan’s core CPI, which excludes fresh food, eased slightly from 3.3% yoy in June to 3.1% yoy in July, aligning with market expectations. Notably, this metric continued its streak above BoJ’s 2% inflation target for a commendable 16 consecutive months.

Diving deeper, core-core CPI, which subtracts both fresh food and energy, inched higher to 4.3% yoy, equalling the peak seen in May. This current rate hasn’t been witnessed since 1981, underscoring the latent inflationary pressures within the Japanese economy.

Processed food costs are a particular hotspot, skyrocketing by 9.2% yoy – a surge not seen in nearly half a century. Adding to this, durable goods saw a robust rise of 6.0% yoy. Furthermore, possibly driven by travel and vacationing demand, accommodation fees witnessed a significant 15.1% yoy hike during the prime summer holiday period.

Conversely, energy prices painted a contrasting picture, plummeting by -8.7% yoy. This decline can largely be attributed to government interventions, with subsidies introduced to mitigate household utility expenses. These subsidies, in turn, have played a pivotal role, dragging the core CPI lower by approximately one percentage point.

Service prices also shifted gears, moving up to 2% yoy from 1.6% yoy – the most substantial leap since 1993 if we set aside the aftermath of the 1997 sales tax hike.

Despite these intricate dynamics, headline CPI remained steadfast at 3.3% yoy.

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