Tokyo consumer prices fall below 2%, affected by free high school tuition and slowdown in food prices – Bloomberg

The April consumer price index (core CPI excluding fresh food) in Tokyo’s wards, which is a leading indicator of national prices, saw its year-on-year rate of increase slow significantly, falling below 2%. In addition to the continued slowdown in food price growth, the Tokyo metropolitan government’s decision to make high school tuition virtually free had an impact.

According to an announcement by the Ministry of Internal Affairs and Communications on the 26th, the core CPI increased by 1.6% compared to the same month last year, slowing down from the 2.4% increase in the previous month. The positive margin has decreased for two consecutive months. The price fell below the Bank of Japan’s 2% price target for the first time in three months. Market expectations were for a 2.2% rise. Food prices excluding fresh food rose 3.2%, slowing growth for the ninth consecutive month.Tokyo will increase high school tuition fees from April. Since the start of the system, which is effectively free of charge, the overall index has been pushed down by 0.49 points.

The index rose 1.8%. Core CPI, which excludes fresh food and energy, rose 1.8%, slowing from the previous month’s 2.9% rise. Market expectations were for a 2.7% rise.

This drop is mainly due to the special factor of free tuition. Although temporary fluctuations in statistics are unlikely to affect the Bank of Japan’s policy decisions, the view that accommodative financial conditions will continue may put pressure on the yen to depreciate. The status quo is expected to be maintained at the decision-making meeting on the same day. Amid growing awareness of inflationary pressures, including the impact of the weaker yen, attention is focused on Governor Kazuo Ueda’s press conference in which he stated that if the weaker yen affects the underlying trend of prices, it could be a reason to change policy.

In the foreign exchange market after the Tokyo CPI was announced, there were some scenes where the yen sold off slightly. Currently, the exchange rate is hovering around 155.60 yen to the dollar. Economists at Morgan Stanley MUFG Securities pointed out that the Tokyo CPI could fall significantly due to special factors, and there was a risk that the foreign exchange market would react reflexively.

Risk of foreign exchange market reaction to Tokyo CPI – Morgan MUFG

(Updated with additional details)