The statistics on Japanese inflation have a peculiarity. In most countries, the categories of food and energy are excluded when calculating core inflation. This is because there is a general belief that monetary policy can have little influence on the demand for food and energy and that prices should therefore be looked at in isolation, where it is assumed that they can be influenced. In Japan, by contrast, only fresh food, i.e. milk, vegetables and fruit, is excluded from the comparable core rate. All other food remains in, Commerzbank’s FX analyst Volkmar Baur notes.

Rice prices in Japan are rising very sharply

“The difference is quite considerable. While fresh food only accounts for around 4% of the basket of goods used to calculate inflation, all other food accounts for a further 22.3%. Most of the time, however, the difference is not particularly large, because most of the fluctuations actually come from fresh food, so the core rate is not distorted too much by the other foods. But only most of the time.”

“Because right now, rice prices in Japan are rising very sharply. In October, the annual rate of change for rice was 58.9%, up from 44.7% the previous month. And such high rates of price increases do have the potential to distort the overall rate. While the overall rate of inflation in Japan fell from 2.5% to 2.3% in October, according to data published earlier today, it would have fallen by 0.3 percentage points (from 2.3% to 2.0%) without the rise in rice prices.”