Japan’s December CPI report showed sharp moderation in headline inflation, largely reflecting energy relief rather than broad-based disinflation. Headline CPI slowed to 2.1% yoy from 2.9%, the weakest pace since early 2022. Core CPI (ex-fresh food) fell from 3.0% to 2.4%, helped by government measures to stabilize gasoline prices.
However, the decline was far less pronounced beneath the surface. Core-core CPI (ex-fresh food and energy) edged down just 0.1pp to 2.9% yoy, highlighting the stickiness of domestic inflation. Food prices excluding fresh items remained elevated at 6.7% yoy, though the pace eased slightly from 7.0%. Rice prices were still up 34.4%, even as inflation in the staple continued to cool gradually from prior peaks.
Energy prices were the key drag, reversing into a -3.1% yoy decline as gasoline prices fell -7.1%, reflecting higher subsidies and preparation for a gasoline tax cut late in the month. While these policy measures are temporarily easing inflation readings, the modest pullback in core-core CPI suggests underlying price pressures remain too firm to ignore.
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