Tokyo CPI inflation beat expectations

Chris Scicluna
Emily Nicol

Tokyo CPI beat expectations, rising to the highest since mid-1981
Today’s Tokyo CPI inflation release for January beat expectations, reporting that consumer prices increased 0.7%M/M – the most since the consumption tax hike in April 2014 – to leave the annual rate up 0.5ppt to 4.4%Y/Y, the highest since June 1981. When excluding fresh foods, core inflation rose 0.4ppt to 4.3%Y/Y, similarly the highest since mid-1981. And when also excluding energy, inflation rose 0.3ppt to 3.0%Y/Y, a more than three-decade high. But with energy and all food still accounting for the lion’s share of inflation, the Tokyo measure on the internationally comparable core CPI rate (1.7%Y/Y) remained below the BoJ’s 2% target at the start of the year, albeit rising to its highest since 2015 (and since 1993 when excluding the impact of consumption tax hikes). Within the detail, clothing inflation (5.1%Y/Y) rose to the highest since 1992, while the annual pace of decline in hotel charges narrowed some 16ppts to -2.8%Y/Y, to add roughly 0.2ppts to headline inflation. Of course, January is expected to mark the peak in Japanese inflation, with our colleagues in Tokyo expecting the government’s household energy bill subsidies to knock almost 1½ppt from the headline national CPI rate next month.

French consumer confidence fell further in January with household purchase intentions lower too
Contrasting with the reported improvement in German sentiment at the start of the year, but similar to the Italian survey results yesterday, today’s French INSEE consumer survey suggested that households remained increasingly downbeat in January. Indeed, the headline sentiment index fell 1pt to 80, to be only marginally firmer than the more than nine-year low recorded in September (79) and well below the long-run average (100). While fears for near-term unemployment receded somewhat, households were more pessimistic about their expectations for their financial and economic situations over the coming twelve months. And while the share of households that expected prices to accelerate over the coming year fell, there was also a modest decline in the share that judged it a good time to make major purchases, with the respective index at its lowest since the initial pandemic slump and suggestive of very subdued spending over the near term. The government’s new pension reform proposals, and associated widespread strike action, is unlikely to have helped sentiment, and the outlook for French consumer spending looks very weak.

Spanish GDP beats expectation with further growth in Q4, but domestic demand contracted markedly
This morning’s first estimate of Q4 GDP from the member states – from Spain – was a touch firmer than expected, with growth of 0.2%Q/Q, unchanged from the now-upwardly revised figure for Q3. That left GDP 0.9% below the pre-pandemic level, but up 2.7%Y/Y in Q4 and 5.5% in 2022 compared to 2021. The detail of the Q4 report, however, was softer than the headline figure might suggest. Household consumption dropped for the first time since the start of 2021, and by a chunky 1.8%Q/Q. Fixed investment also dropped, down for a second successive quarter and by a steeper 3.8%Q/Q with weakness in every category of capex. So, domestic demand dropped 0.9%Q/Q. And the only reason for the positive GDP growth was that imports (-4.2%Q/Q) fell more sharply than exports (-1.1%Q/Q). INE, the Spanish statistical institute, also cautioned that the Q4 GDP estimate had been based on fewer data for December than would normally be the case, raising the likelihood of a (possibly significant) revision when the next estimate is published in March.

Personal income, spending and deflators for December due in the US
The end of the week in the US brings the December personal spending and income report, accompanied by the associated deflators. Yesterday’s report gave insights into what to expect. In particular, personal incomes appear to have risen for an 11th successive month, by a rounded 0.3%M/M, slightly softer than in November due in part to fewer hours worked. Higher interest rates, however, could have given support to investment income. Real spending likely fell about 0.2%M/M, due to lower spending on both durable and non-durable goods. And with the core PCE deflator having dropped 0.8ppt in Q4 to 3.9%Q/Q ann., it likely rose in December by about 0.2%M/M, half the pace of the first nine months of the year. Other US data out today include pending home sales for December, which are likely to drop for a seventh successive month and for the 13th month in the past 14. And the final University of Michigan consumer confidence survey results for January are also due – the preliminary release reported a rise of almost 5pts in the headline index to a none-month high, while 1Y inflation expectations fell to 4.0%Y/Y, the lowest in 21 months but 5-10Y inflation expectations ticked back up slightly to 3.0%Y/Y, in the line with the average for the year. 

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