July 2021 Consumer Price Index

◆Japan’s July 2021 core CPI (excluding fresh foods) declined by -0.2% y/y, while at the same time exceeding market consensus at -0.4%. CPI figures have been revised based on 2020 results as of the current report, which has brought a major downward revision in the rate of change on a y/y basis. Meanwhile, new core-core CPI (excluding fresh foods and energy), also suffered a year-to-year decline at -0.6%, but declined less than in June when it registered -0.9%. Prices continue to maintain underlying strength excluding the influence of special factors.

◆Looking at year-to-year performance by component in July, energy prices were a major factor in pushing up overall performance. Meanwhile, services continued the previous month’s trend and became a major negative factor, with mobile phone communication fees (mobile phone charges) continuing the downward trend. However, due to the change in how the index is calculated, accommodations recorded a major increase, with the extent of downward pressure on services weakening overall.

◆As for the future of Japan’s core CPI, positive and negative factors are expected to continue competing for the most influence, with the extent of decline gradually decreasing. Positive factors include growth in the price of resources and the price of imported goods, with residual influence also expected from last year’s Go To Travel program in August. On the other hand, the widening of the state of emergency to include more regions, as well as the extension of the period covered by the state of emergency, creates a situation in which the price of services will likely find it difficult to increase. Meanwhile, the cut in mobile phone communication fees is expected to continue holding down the year-to-year growth rate in core CPI.