Japan Core Inflation Slows in November

In what is seen as a blow to Japan's Prime Minister Abe Shinzo policies, core inflation in the country continues to slow. In November, the all-Japan core CPI was +2.7% year-over-year. Excluding the impact of the consumption tax hike it was +0.7%, down 0.2% from October.

Price increases slowed for energy-related items, like gasoline and kerosene, as well as for durable goods such as TVs, air conditioners, and refrigerators.

"We think the decline in the inflation rate reflects deterioration in the output gap on a decline in consumption following the consumption tax hike," economists led by Yoshiyuki Suimon at Nomura said.

The CPI for Toyko, which is closely watched given the timeliness of the data, was +2.3% in December, and +0.4% excluding the impact of the consumption tax hike, which was down 0.1% month-over-month.

Suimon warns crude oil prices remaining low could have further negative impact on inflation. "In addition to deterioration in the output gap following the consumption tax hike, the impact of recent declines in crude oil prices is gradually starting to materialize," the economists said. "We expect crude oil prices to remain weak, as OPEC announced in November that it would refrain from cutting output to ease the excess supply in crude oil, and as result, we expect a persistent ongoing drag on the inflation rate. There is a slight lag between the decline in crude oil prices and the impact on CPI, but if crude oil prices were to remain around current levels, we estimate all-Japan core inflation excluding the impact of the tax hike would slow to less than +0.5% in 2015 H1."

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