Japanese underlying price pressures continue to broaden

25 October 2022

Chris Scicluna
, 
Emily Nicol

Japanese underlying prices pressures continue to broaden
After Friday’s CPI inflation figures saw the BoJ’s forecast measure of core inflation rise to 3.0%Y/Y, a more than three-decade-high when excluding the impact of past consumption tax hikes, the BoJ’s alternative gauges of underlying inflation, published today, similarly implied a broadening of price pressures. Indeed, they showed that three-quarters of items in the CPI basket had higher prices than a year ago, the biggest share since the series began in 2001, while the share of those with declining prices slipped below 19% for the first time too. And so, the BoJ’s 15% trimmed mean CPI hit 2%Y/Y in September, similarly a series high and up from just 0.6%Y/Y a year earlier. Of course, this remains well below equivalent measures in the US (7.3%Y/Y) and euro area (7.4%Y/Y). And it seems unlikely to alter the BoJ’s view that inflation is likely to slip back below target next year once global supply-related pressures moderate somewhat and more favourable base effects kick in. So, the BoJ will also continue to judge that the data do not require a change to its current policy framework.

German ifo indices to highlight recession risks; ECB Bank Lending Survey to flag tighter credit standards
The flow of sentiment indicators continues today, with the German ifo business survey due to mirror the increasing pessimism reported in yesterday’s flash PMIs, while also reflecting increased negativity among retail and construction firms, to signal the likelihood of recession in the euro area’s largest member state. Not least reflecting the increasing economic uncertainties and less accommodative monetary policy, the ECB’s latest Bank Lending Survey is expected to report a further tightening of credit standards over the past quarter.

New PM Sunak to appoint cabinet members and possibly give policy clues; UK CBI manufacturing survey to highlight challenging conditions in the sector
Politics will remain the main focus in the UK, with the markets’ preferred candidate Rishi Sunak to be confirmed as Prime Minister and deliver a statement outside Downing Street later this morning. As the day goes on, he should make appointments to his cabinet, presumably retaining Jeremy Hunt as Chancellor to keep the markets happy. But detail on policy is likely to remain thin on the ground. And it remains to be seen whether Sunak will wish to put back the date of the medium-term fiscal plan from 31 October. Data-wise, following yesterday’s disappointing PMIs, the CBI industrial trends survey is expected to report a notable drop in output in the three months to October, with expectations for another tough three months ahead amid falling orders and business optimism components.

US consumer confidence and house price figures due
In the US, today brings the Conference Board consumer confidence survey for October. Amid the recent tick up in gasoline prices and still elevated costs of food and utilities, the headline sentiment index is expected to have fallen back at the start of Q4 (down almost 1pt to 107), to be still well below the pandemic peak (129) but some way above July’s trough (95). Sentiment will also be weakened by the current housing market adjustment, with the FHFA and S&P CoreLogic house price indices expected to report a further monthly decline in August. 

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