April 2021 Consumer Price Index

◆Japan’s April 2021 core CPI (excluding fresh foods) declined by -0.1% y/y, while at the same time exceeding market consensus at -0.2%, continuing to narrow the extent of its decline. However, CPI in y/y terms marked time on a month-to-month basis, reflecting the influence of the government’s request to cut mobile phone communication fees. Meanwhile, new core-core CPI (excluding fresh foods and energy), which indicates the price trend, suffered a year-to-year decline for the first time in four months at -0.2%. However, prices continue to maintain underlying strength if we exclude the influence of the above policy change.

◆Looking at year-to-year performance by component in April, energy prices shifted into the upward direction, while services brought severe downward pressure on overall results. In the services category, mobile phone communication fees decline significantly in comparison to the previous year at -26.5%, pushing core CPI down by 0.6%pt. On the other hand, the influence of free higher education ran its course, and tuition at private universities shifted upwards, bringing upward pressure on overall results. Energy prices were influenced by the comeback in the price of crude oil, which led to major growth in the price of gasoline and kerosene. Meanwhile, gas & electricity bills, which lag behind gasoline in reflecting changes in the price of crude oil, reduced the extent of their decline.

◆As for the future of Japan’s core CPI in y/y terms, the index is expected hover at around zero as positive and negative factors compete for the most influence. Positive factors include growth in the price of crude oil and the price of imported goods. Meanwhile, the primary negative factor is the cut in mobile phone communication fees, which is expected to continue bringing downward pressure on prices overall.