May 2021 Consumer Price Index

◆Japan’s May 2021 core CPI (excluding fresh foods) grew by +0.1% y/y, while at the same time exceeding market consensus at 0.0%, shifting into positive y/y performance for the first time in a year and two months. Meanwhile, new core-core CPI (excluding fresh foods and energy), which indicates the price trend, suffered a year-to-year decline for the second consecutive month at -0.2%. However, prices continue to maintain underlying strength if we exclude the influence of government policy.

◆Looking at year-to-year performance by component in May, rising energy prices were a major factor in pushing up overall performance. On the other hand, services continued the previous month’s declining trend. As for energy prices, the comeback in the price of crude oil led to growth in the price of gasoline and kerosene, while gas & electricity bills, which lag behind gasoline in reflecting changes in the price of crude oil, reduced the extent of their decline. Meanwhile, as for performance in services, mobile phone communication fees (mobile phone charges) declined significantly following last month in comparison to the previous year at -27.9%, pushing down overall core CPI by 0.7%pt.

◆As for the future of Japan’s core CPI in y/y terms, the index is expected to maintain a level of around +0.1% 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, with residual influence also expected from last year’s Go To Travel Campaign in August and beyond. Meanwhile, the primary negative factor is the cut in mobile phone communication fees, which is expected to continue hampering growth in overall prices.