Japan: Inflation jumps to highest level since January 2023 in December
Latest reading: Inflation rose to 3.6% in December from November’s 2.9%. December’s figure represented the highest inflation rate since January 2023. As a result, consumer prices increased 2.7% over 2024 as a whole, the second-highest figure in the last decade.
Meanwhile, core inflation—the main gauge tracked by the Bank of Japan in making its monetary policy decisions—rose to 3.0% in December, up from November’s 2.6% and the highest figure in 16 months. The figure matched market expectations. The acceleration in both headline and core inflation was driven by the recent phasing out of gas and electricity subsidies.
Finally, consumer prices rose 0.59% in December over the previous month, accelerating from November’s 0.43% increase.
Outlook: Inflation should trend down through Q4 2025 as the factors that pushed up price pressures over the last two years—higher commodity prices, a weaker yen, subzero interest rates and bumper pay increases—subside. Moreover, near-term price pressures will be further depressed by the government’s decision to reinstate energy subsidies from January to March. That said, inflation should remain slightly above the Bank of Japan’s 2.0% target in 2025 as a whole, according to our Consensus, above the 0.5% average recorded before the pandemic, as Japan breaks its culture of low pay rises.