Japanese PPI inflation beats expectations as import prices exacerbated by yen depreciation
Japan’s PPI inflation figures surprised on the upside in September, with prices rising 0.7%M/M to leave the annual rate up 0.3ppt to 9.7%Y/Y, the strongest since April’s more-than-4-decade high (9.8%Y/Y). Higher prices of imported petroleum, coal and natural gas – up 6.6%M/M, 112%Y/Y – remained a key upwards inflationary impulse. And the jump in imported prices was exacerbated by the weaker exchange rate, which rose by more than 4½%M/M in yen terms, but just 0.2%M/M on a contract-currency basis. With the yen having maintained a downtrend this month, producers cost burdens seem bound to remain elevated. And increasingly squeezed profit margins should mean further pass through to consumers in due course too.

Japanese household inflation expectations remain elevated, but income expectations remain weak
With CPI inflation in Japan having risen to an eight-year high over the summer, today’s BoJ quarterly consumer opinion survey unsurprisingly saw the share of households reporting ‘significant’ price rise over the past year jump to the highest for fourteen years (up 16ppts from three months ago to 46%). In addition, the share of those expecting prices to increase (both significantly and slightly) over the coming year remained elevated at 86%. And the median household forecast of inflation five years ahead was unrevised at 5.0%Y/Y, with more than one third expecting prices to rise significantly. Nevertheless, a smaller share of households (8.1%) expects their income to rise over the coming year, and therefore a larger share of households (44%) expects their spending to decline.

German inflation confirmed in double-digits; energy support measures unlikely to reduce bills before March
The final German inflation data for September aligned with the flash estimates. So, the national CPI measure rose a steep 2.1ppts to 10.0%Y/Y, with the EU-harmonised HICP rate up by the same amount to 10.9%Y/Y. In part that big jump reflected the expiry of temporary government support measures such as the fuel discount and 9-euro rail ticket, which pushed transport inflation up more than 10ppts from August to 14.0%Y/Y, still nevertheless a couple of ppts below the level in May before those measures were initially implemented. Among other details, food inflation rose more than 2ppts to 18.7%Y/Y. And energy inflation rose more than 7ppts to 43.9%Y/Y. But core CPI inflation (excluding food and energy) was also significantly stronger, up 1.1ppts to a new series high of 4.6%Y/Y, pointing again to increasingly broad-based pressures. Looking forward, the precise path for inflation will in part depend on the government’s latest energy price support measures. While there appears likely to be an initial round of support in December, the nature of measures currently proposed are unlikely to reduce energy inflation until March, when a rebate will be deducted from bills. The modalities, however, are still unclear. And before we get there, even assuming that there will be no need for energy rationing over the winter, Germany’s headline HICP inflation rate seems likely to remain firmly in double-digits.

As mortgage rates jump, RICS survey flags loss of momentum in the UK housing market The September RICS survey unsurprisingly suggested that the jump in mortgage rates triggered by the government’s ill-considered fiscal policy is set to hit the housing market. With Moneyfacts reporting that rates on 2Y fixed-rate mortgages rose yesterday close to 6.5% from just 4.2% at the beginning of last month, a big affordability squeeze is underway. But according to the RICS, already last month, new buyer inquiries had fallen for a fifth successive month in September. And while the headline price index remained in positive territory, in part due to a shortage of vendor instructions, near-term expectations for sales and prices have clearly turned for the worse. And if the deterioration in affordability for re-mortgagers, and broader economic headwinds, bring forced sellers to the market over coming weeks, house prices are certainly heading south, with double-digit percentage declines a very good bet.

US CPI figures likely to report easing energy price pressures, but core prices set to strengthen
As yesterday’s minutes from September’s FOMC meeting highlighted that the Fed’s discussion remained focussed on inflation rather than growth fears, today’s CPI report will watched closely. Energy prices are expected to have fallen for a third consecutive month in September after a cumulative drop of more than 9% in July and August. Food prices appear likely to post another brisk increase, although softer than the rapid average of 0.9%M/M in the past 12 months. Overall, our colleagues in Daiwa America expect consumer prices to have risen 0.2%M/M, a touch firmer than in August (0.1%M/M), but nevertheless leaving the annual rate down 0.2ppt to 8.1%Y/Y, which would mark a seven-month low. However, with underlying price pressures broadening, core prices are expected to have risen a stronger 0.4%M/M, close to the average over the past twelve months (0.5%M/M) and leaving the annual rate up 0.2ppt to 6.5%Y/Y.