Japan: Inflation slows in February from the prior month
Latest reading: Consumer prices increased 1.3% in annual terms in February, following a 1.5% rise in the prior month. February’s reading was the weakest since March 2022.
Relative to the prior month’s data, there were milder price pressures for transportation (+0.5% in annual terms vs +0.6% in January) and energy (-9.1% vs -5.2% in January). In contrast, price pressures were higher for food in February (+4.0% vs +3.9% in January). Finally, the change in housing prices was the same as in the prior month (+1.0% in February and January).
Meanwhile, core consumer prices rose 1.6% in annual terms in February, following a 2.0% rise in the prior month.
Finally, consumer prices fell 0.62% in February in month-on-month terms, following a 0.09% decline in the previous month.
Panelist insight: Commenting on the outlook, EIU analysts said:
“Higher energy costs and a weaker yen will drive up inflation. Increasing economic uncertainty will weigh on consumer and business confidence, which—together with the supply-side inflationary pressures—will constrain household consumption. […] Much will depend on the duration of the conflict in the Middle East. If active hostilities end by May, oil prices will peak in the first half of the year before moderating. In this baseline scenario, we expect Japan’s inflation trend to stabilize in the second half of 2026, not repeating the sharp spike seen in 2023 after the Ukraine war. Japan has some headroom to alleviate the pressures from higher oil prices. In addition to providing subsidies, it has one of the largest oil reserves in Asia, estimated to provide more than eight months of cover. Japan’s improved sovereign debt profile in recent years also gives it room to provide additional fiscal support to domestic demand.”
ING’s Min Joo Kang added:
“Despite soaring petrol prices, headline inflation is expected to remain below 2% for the next couple of months. The government’s price cap on fuel prices should absorb some of the price shocks. And base effects are likely to anchor the inflation below 2%. However, core-core inflation is expected to remain sticky, staying near 2.5%. We expect demand-side inflationary pressures to remain intact, with encouraging initial wage-negotiation results.”