December 2021 Consumer Price Index

◆Japan’s December 2021 core CPI (excluding fresh foods) was at +0.5% y/y, falling below market consensus at +0.6%. The growth rate marked time in comparison to November results. The bull market in commodities continued to bring upward pressure on energy prices, but at the same time, services brought downward pressure on overall performance. Energy has been the main factor in recent core CPI growth, but with the exception of this factor, the general trend in prices is marking time.

◆Looking at year-to-year performance by component in December, energy related components such as “Electricity” and “Gas, manufactured & piped” brought upward pressure, while on the other hand, foods (excluding fresh foods and eating out) marked time in comparison to November. In the area of services, the growth rate of “Hotel charges”, which are an expression of the base effect of the Go To Travel Campaign, suffered a decline in growth rate, bringing further strength to overall downward pressure.

◆As for the future of y/y change in Japan’s core CPI, positive and negative factors are expected to continue competing, but moderate growth is expected to continue overall. However, the uncertainty factor of the Omicron variant of COVID-19 is expected to continue bringing influence on trends for some time. Although the GDP gap is expected to improve in the Oct-Dec period of 2021, it may worsen again in 2022 and beyond, depending on the trend of infection. If the macroeconomic supply-demand balance deteriorates due to the spread of infection, there will be downward pressure on prices.