BoJ’s estimates of underlying inflation rise to new series highs

27 June 2023

Emily Nicol
, 
Chris Scicluna

BoJ’s estimates of underlying inflation rise to new series highs
While headline inflation in Japan eased back slightly in May, at 3.2%Y/Y it still remained firmly above the BoJ’s 2% target. And while policy-makers maintain the view that inflation will fall back over coming months as cost-push pressures continue to moderate, there are signs that underlying price pressures continued to mount last month. Indeed, today’s estimates published by the BoJ showed that in May a record 85% of items in the CPI basket saw prices rising compared with a year earlier, compared with 69% a year ago and just 51% in May 2021. Moreover, when excluding the 15% of items with the highest and lowest inflation rates in the basket, the trimmed mean CPI rate rose a further 0.1ppt to 3.1%Y/Y, the highest since the series began in 2001. And the mode CPI rate also hit a record-high 2.9%Y/Y, likewise well above the 2% target.

Survey signals welcome moderation of UK shop price inflation in June
According to the BRC Nielsen shop price survey, inflation on the UK high street moderated in June, but inevitably remained high by historical standards. The survey’s headline inflation rate slowed 0.6ppt from May’s series high to a four-month low of 8.4%Y/Y. The slowdown was led by food, inflation of which eased 0.8ppt to 14.6%Y/Y, similarly the lowest since February. Within that category, fresh food inflation dropped 1.5ppt to a five-month low of 15.7%Y/Y, but prices of ambient items slowed a modest 0.1ppt to 13.0%Y/Y. Non-food inflation slowed 0.4ppt to 5.4%Y/Y, also the lowest since February, with the BRC citing discounting of clothing and electrical goods among other things.

We expect the picture of slowing inflation of food and core goods in course to be reflected in the official CPI data for June. Both components should then continue to decline steadily through the second half of the year. By Q4, core goods inflation (on the ONS measure) should be below 5%Y/Y with food inflation below 10%Y/Y. However, the risks to that view are skewed to the upside, not least due to government policies such as increased business rates and the planned imposition of post-Brexit border checks on food imports from the EU from October, with an associated inspection fee on such consignments also to come in January. Moreover, of course, beyond the high street, not least due to strong wage growth, inflation of services looks set to remain far stickier than inflation goods.

Lagarde’s keynote speech at ECB forum to be closely watched for policy insights; Italian sentiment surveys also due
The main focus in the euro area today will be the ECB’s central bank forum in Sintra, for any further insights into the near-term path of monetary policy from President Lagarde’s keynote speech this morning. ECB Executive Board members Schnabel and Panetta will also chair sessions today on ‘structural change in energy markets and implications for inflation’ and ‘monetary policy in the face of multiple shocks’.

Data-wise, this morning will bring Italian ISTAT business and consumer surveys results for June, with sentiment forecast to have moved broadly sideways contrasting with the downside surprises from yesterday’s German ifo and Friday’s flash PMI.

Durable goods, consumer confidence and new home sales figures due from the US
In the US, today brings several releases of note including the advance durable goods ordrer data for May. An increase in new aircraft orders reported by Boeing might well offset an anticipated drop in defence-related aircraft bookings to leave total orders up slightly last month. But with overall demand in manufacturing lacklustre, core orders might well move sideways at best. Today will also bring the latest Conference Board consumer confidence survey results, with sentiment expected to remain subdued amid still elevated inflation and signs of weakening in the labour market. Subdued confidence and elevated mortgage rates will also continue to restrain new home sales, which are forecast to have moved broadly sideways in May.

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