Japan Macro 1

18 September 2026 Fixed Income | Japan Macro Information

Nationwide CPI for August: Inflation slightly below market expectations, but signs of consumer prices starting to be impacted by the Iran conflict

Ryosuke Katagi Market Economist The nationwide CPI figures for August published by the Statistics Bureau on 18 September show year-on-year inflation unchanged from July at +1.9% for the headline index, down %pt at +1.7% for the core gauge (all items less fresh food), and also unchanged at +1.9% for the BOJ's preferred core-core measure (all items less fresh food and energy). Negative contributions were seen from "Electricity" and "Gas, manufactured & piped" (reflecting a resumption of government subsidization) as well as rice prices, but inflation rates meanwhile rose for some other components including "Domestic non- durable goods" as the ongoing Iran conflict seemingly started to take more of a toll. Today's inflation numbers did end up coming in a little below market forecasts, but meanwhile suggested that the Middle East situation is beginning to impact consumer prices to a greater degree (after an initial lag). As we also discuss below, we are accordingly forecasting an acceleration of domestic inflation through 2Q 2027 under the assumption that this impact will continue to intensify for at least the time being.

"Furniture & household utensils" and "Health & medical care" were among the categories that made bigger contributions to (year-on-year) headline inflation than in July (Chart 4). Within "Furniture & household utensils", "Domestic non-durable goods" made a bigger contribution as the Iran situation seemingly drove up prices of many petroleum-related products including "Plastic bags" and "Rolled toilet paper". Within "Health & medical care", inflation doubled from +1.6% YoY in July to +3.2% for "Medical treatment" as a result of an increase in maximum out-of-pocket contributions under the High-Cost Medical Expense Benefit System. "Fuel, light & water charges" and "Non-perishable food" meanwhile made smaller contributions than in July. Within the former category the resumption of government subsidization caused prices to fall further for "Electricity" and "Gas, manufactured & piped", while the overall inflation rate for the latter category was down slightly from +3.0% in July at +2.7% YoY to mark a 13th successive month of deceleration as the pace of year-on-year "Rice" disinflation picked up from –11.6% to –15.7% but inflation also slowed modestly for other non-perishable food items. However, while rice prices do look likely to keep falling as a result of slacker supply/demand, we meanwhile expect "Non-perishable food" inflation to start accelerating as the Iran situation continues to drive up various packaging and materials costs.

Inflation also slowed from +4.6% YoY in July to +1.6% for "Telephone charges (mobile phone)" as a number of carriers ran campaigns, but "Mobile phones" saw an acceleration from +3.4% to +10.2% on the back of price hikes for some handsets. "Hotel charges" meanwhile saw inflation switch sign from +0.9% in July to –1.4%.

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Goods and services Goods inflation slowed slightly from +2.7% in July to +2.6%, with the aforementioned negative contributions from electricity and piped gas charges and rice prices offset by positive contributions (including for "Domestic non-durable goods") that appear attributable to the ongoing Iran conflict. Services inflation meanwhile held steady at +1.2% YoY, suggesting that the overall services inflation landscape as yet remains essentially unchanged.

Outlook We expect inflation to keep accelerating—primarily for food and other goods—now that the rise in crude oil costs stemming from the Iran situation is starting to have more of an impact on consumer prices. The BOJ's preferred core-core inflation measure is indeed set to slow markedly from April 2027…