Core Inflation in Japan's Capital Hits 1-Year High, Keeps BOJ Rate-Hike Bets Alive

Economic

Summary:

Rise in Tokyo core CPI matches median market forecast.

Core inflation in Japan's capital hit 2.5%, marking the fastest annual pace in nearly a year, well exceeding the central bank's 2% target and keeping alive market expectations for further interest rate hikes.

The data released on Friday follows the Bank of Japan's decision last week to raise interest rates to 0.5%, the highest since the 2008 global financial crisis but still far below that of other major economies.

The increase in the Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, matched a median market forecast and followed a 2.4% gain in December.

The Tokyo index, considered a leading indicator of nationwide trends, accelerated for the third straight month with the year-on-year rise matching a high hit in February last year. Core Inflation in Japan's Capital Hits 1-Year High, Keeps BOJ Rate-Hike Bets Alive_1

Core Inflation in Japan's Capital Hits 1-Year High, Keeps BOJ Rate-Hike Bets Alive_1

This chart depicts the core and core-core inflation levels in Tokyo across the time.

Some analysts expect inflation to accelerate towards 3% in coming months as a stubbornly weak yen continues to push up import costs, keeping the BOJ under pressure to hike rates.

"Price pressures from rising raw material costs are proving stickier than expected, which may prevent real wages from turning positive and hurt consumption," said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, adding that nationwide core inflation may approach 3% in May.

"Just looking at inflation, the BOJ might see scope to raise interest rates once or twice this year. But much depends on whether consumption and the broader the economy hold up."

A separate index for Tokyo that strips away both fresh food and fuel costs and is closely watched by the BOJ rose 1.9% in January from a year earlier after increasing 1.8% in December, the data showed.

Prices increased for food, fuel and a broad range of goods in a sign of the hit households face from rising living costs, the data showed.

The overall Tokyo CPI, which includes fresh food, rose 3.4% in January from a year earlier, marking the fastest pace in nearly two years on soaring prices of vegetables and rice.

The BOJ exited a decade-long, radical stimulus programme last year and embarked on a rate-hike cycle analysts say may eventually push up short-term rates to around 1% from 0.5% currently.

Governor Kazuo Ueda has said the BOJ will continue to push up borrowing costs if continued wage gains underpin consumption and allow firms to raise prices, thereby keeping inflation stably around its 2% target.

In fresh quarterly forecasts released last week, the BOJ sharply revised up its fiscal 2025 inflation forecast citing longer-than-expected pressure from rising raw material costs.

Ueda said such cost-push pressure will likely dissipate in the latter half of fiscal 2025, providing households some relief.

While many firms are signalling readiness to keep boosting pay amid intensifying labour shortages, there is uncertainty on whether wages will rise fast enough to compensate households for rising living costs.

Services inflation in Tokyo hit 0.6% in January, slowing from 1.0% in December, suggesting price rises continue to be driven more by rising raw material costs than wage gains.

Underscoring the fragile nature of Japan's economy, separate data showed factory output rose just 0.3% in December from the previous month. Manufacturers surveyed by the government expect output to rise 1.0% in January and 1.2% in February.

Source: Reuters

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Warren Takunda

Economic

While the Nationwide House Price Index indicates a slowdown in price growth in late 2024, key factors such as mortgage rate forecasts and policy changes could drive stronger-than-expected increases later in 2025 and beyond.

According to the latest data, the House Price Index rose slightly to 541.0 in January, up from 540.5 in December 2024. However, the monthly price change was a modest +0.1%, a sharp deceleration from the +0.7% growth seen in the previous month.

On an annual basis, house prices remain higher than a year ago, with a +4.1% increase compared to January 2024. However, this represents a decline from the +4.7% annual growth recorded in December, suggesting that the rapid price inflation seen in 2024 is beginning to ease.

Meanwhile, the average (unadjusted) house price fell slightly to £268,213, down from £269,426 in December. The small dip in average house prices highlights affordability challenges for buyers, as mortgage costs remain a significant barrier to entry.

Affordability Concerns Persist

Despite the slowdown in price growth, affordability remains a key issue for first-time buyers. Nationwide’s data suggests that mortgage payments for a typical first-time buyer purchasing a property with a 20% deposit now consume 36% of take-home pay, well above the long-term average of 30%.

Additionally, the house price-to-earnings ratio for first-time buyers stands at 5.0, much higher than the long-term average of 3.9, underscoring the difficulty of entering the property market without substantial financial support.

House Price Growth Expected to Accelerate

Alex Kerr, UK Economist at Capital Economics, suggests that house prices could grow faster than many expect.

He notes, "House price growth may remain muted over the next few months given that swap rates point to mortgage rates climbing higher. That said, prices may be supported by a potential surge in demand ahead of the expiry of the temporary increase to the stamp duty nil band thresholds after 31st March.

"Either way, our forecast that Bank Rate will be cut from 4.75% now to 3.50% in early 2026, rather than the low of 4.00% that investors currently anticipate, suggests mortgage rates will fall from 4.6% in December to around 4.0% in 2026. That explains our view that house prices will grow by an above-consensus 3.5% in Q4 2025 and 4.5% in Q4 2026."

Experts suggest that the slowdown in house price growth could be an early indicator of more stable conditions in 2025. With high mortgage rates and affordability constraints limiting buyer demand, price increases may continue to moderate over the coming months.

However, demand for housing remains strong, and supply constraints could keep prices from falling significantly. Analysts will be closely watching upcoming economic indicators and interest rate decisions to assess the trajectory of the housing market in the months ahead.

For now, the latest data suggests that while house prices continue to rise on an annual basis, the rapid growth of 2024 appears to be easing, providing a potential opening for prospective buyers who have been waiting for a more balanced market.

Source: Poundsterlinglive

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Warren Takunda

Economic

London stocks edged up in early trade on Friday, taking their cue from a positive session on Wall Street, as investors mulled house price data from Nationwide and eyed the latest US inflation reading.

At 0825 GMT, the FTSE 100 was up 0.2% at 8,663.20.

Richard Hunter, head of markets at Interactive Investor, said the US personal consumption expenditures report due at 1330 GMT "will provide further colour, with core inflation expected to have risen by 2.5% in the fourth quarter, up from 2.2% in the previous, and representing a gain of 2.8% year on year".

On home shores, data from Nationwide showed that growth in house prices eased in January.

House prices ticked up 0.1% on the month in January following a 0.7% increase in December 2024, missing expectations for 0.3% growth. On the year, house prices rose 4.1% in January following a 4.7% jump the month before.

The average price of a home was £268,213, down from £269,426.

Nationwide chief economist Robert Gardner said: "The housing market continues to show resilience despite ongoing affordability pressures. As we highlighted in our recent affordability report, while there has been a modest improvement over the last year, affordability remains stretched by historic standards.

"A prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 36% of their take-home pay - well above the long-run average of 30%.

"Furthermore, house prices remain high relative to average earnings, with the first-time buyer house price to earnings ratio standing at 5.0 at the end of 2024, still well above the long run average of 3.9. Consequently, the deposit hurdle remains high.

"This is a challenge that has been made worse by the record increase in rents in recent years, which, together with the cost-of-living crisis more generally, has hampered the ability of many in the private rented sector to save."

Alex Kerr, UK economist at Capital Economics, said: "Although the muted 0.1% m/m rise in Nationwide house prices in January was slightly worse than expected (consensus +0.3% m/m, CE forecast +0.2% m/m), it is not too surprising given the rise in quoted mortgage rates at the end of last year. But we doubt that price growth will continue to disappoint and instead think prices will rise by more than most expect this year.

"Looking ahead, house price growth may remain muted over the next few months given that swap rates point to mortgage rates climbing higher. That said, prices may be supported by a potential surge in demand ahead of the expiry of the temporary increase to the stamp duty nil band thresholds after 31st March.

In equity markets, engineering business Smiths Group surged as it said it was selling its interconnect unit and planned to demerge or offload the detection operation as part of a strategic review that includes extending its share buyback to £500m.

Smiths added that the recent cyber attack was limited to internal enterprise systems, and it had "made good progress in the recovery of these, with most critical systems being back online".

Fashion and homeware retailer Next jumped to the top of the FTSE 100 after an upgrade to ‘buy’ from ‘neutral’ at UBS, which said the company was at an "inflection point" when it comes to growth and valuation. The target price was lifted to 11,700p from 10,500p.

On the downside, Sainsbury’s fell after a downgrade to ‘hold’ by HSBC, while Admiral was knocked lower by a downgrade to ‘reduce’ by Peel Hunt.

Source: Sharecast

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Samantha Luan

Economic

Consumer spending kept the U.S. economy humming in the final months of 2024.

Federal Reserve Keeps Interest Rates

UnchangedAs expected, the Federal Reserve did not raise its key interest rate. But in a reversal from December, the Fed said it will be “patient” as it decides when to change them again.

There is one major gift Trump is inheriting from Biden: A good job market

U.S. employers added more than a quarter-million jobs in December, according to the Labor Department. That’s far more than forecasters were expecting.

The nation’s gross domestic product grew at an annual rate of 2.3% in October, November and December, according to a report from the Commerce Department Thursday. That’s down slightly from the previous quarter when GDP grew at a 3.1% annual pace.

Consumers ramped up their spending in the final months of the year, opening their wallets for both goods and services. Spending on big-ticket items jumped at an annual rate of more than 12%, which may have been driven partly by a desire to buy before any of the new tariffs threatened by President Trump kick in.

“The consumer is driving the economic train,” says Mark Zandi, chief economist at Moody’s Analytics. “The economy is creating a boatload of jobs and unemployment is low,” so shoppers have money to spend.

By contrast, business investment was down during the quarter.

The economy ended last year 2.5% larger than it was in the final months of 2023. That’s stronger growth than most other countries enjoyed last year. GDP in Europe, for example, was flat.

A booming stock market and record-high home values also boosted people’s willingness to spend — especially among the wealthy.

“When they feel wealthy, they feel confident and they save a little bit less and spend a little bit more,” Zandi said. “The real juice here is coming from folks who are in good financial shape. Lower-income households, they’re still struggling.”

All the executive orders Trump has signed after 1 week in office

President Trump signed a slew of orders during his first week in office, impacting policy on immigration, the environment, federal diversity programs and more.

Forecasters expressed some uncertainty about whether the solid economic growth would continue this year.

“The biggest risk to our 2025 forecast is an immediate imposition of across-the-board tariffs on key trading partners,” wrote Bernard Yaros of Oxford Economics in a research note.

He projects that if Trump follows through on his threat to impose tariffs on goods from Canada, Mexico and China, it could shave more than 1% off GDP growth this year.

Even though Americans are spending, many still feel anxious about the economy. A report from the Conference Board released this week shows consumer confidence fell to a four-month low in January.

Source: thepublicsradio.org

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Thomas

Economic

India's tax policies play a crucial role in attracting foreign investment, which drives economic growth. Budget 2025 offers an opportunity to simplify tax regulations, reduce capital gains tax, and introduce sector-specific incentives to enhance India's global investment appeal.

By Daizy Chawla and Neha Mittal

Foreign direct investment (FDI) has long been a key driver of India’s economic growth, contributing to capital inflows, technological advancements, and job creation. However, the country’s tax landscape and compliance requirements are critical factors influencing the flow of foreign investment. As India prepares for Budget 2025, the government faces the challenge of addressing investor concerns while balancing domestic fiscal objectives. The question arises: how will the tax policies unveiled in Budget 2025 shape India’s attractiveness as a global investment destination?

Current State of Foreign Investment in India

India has consistently been an attractive destination for foreign investors, thanks to its large and growing market, along with a skilled labour force. Over recent years, the government has introduced various reforms aimed at enhancing the ease of doing business, such as liberalising FDI policies, relaxing investment norms in several sectors, and launching initiatives like Startup India to foster innovation and attract foreign capital into the startup ecosystem.

Despite these efforts, the Indian tax system remains complex, presenting significant challenges for foreign investors. Issues such as tax uncertainty and the capital gains tax structure can create friction and deter potential investors. As global competition for foreign capital intensifies, Budget 2025 will be pivotal in addressing these concerns and providing the clarity and incentives needed to sustain foreign investment.

The Tax Landscape: Opportunities and Challenges

Foreign investors, especially those entering India through joint ventures, mergers and acquisitions (M&A), or portfolio investments, are required to navigate a complicated tax structure to maximise returns.

1) Corporate Tax Rates and Taxation of Foreign Investments

India has made significant strides in reducing its corporate tax rates, with a substantial reduction for existing companies to 22%, and for new manufacturing companies to 15%. These measures were designed to enhance India’s global competitiveness.

However, foreign investors still face challenges in several areas:

* Foreign Companies Tax Rates: Foreign entities operating in India (whether via branch or project offices) are subject to a high tax rate of 40%. This rate acts as a deterrent for overseas businesses looking to establish a presence in India.

* Capital Gains Tax: Foreign investors are liable to pay capital gains tax rates ranging from 10% to 20%, depending on the nature and duration of their investment. While these rates are competitive, the complexity of tax treaties with other countries creates significant uncertainty.

* Dividend Taxation: Although India abolished the Dividend Distribution Tax (DDT), foreign investors still face taxation on dividends, with a withholding tax rate of 20%, further complicating the investment process.

2. Tax Incentives and Reforms for Foreign Investment

India has introduced several tax incentives to promote foreign investment, such as Special Economic Zones (SEZs) (which offer tax exemptions and other benefits, making them attractive to foreign investors), R&D Tax Benefits (deductions for companies investing in research and development, which can be particularly appealing for foreign investors in technology and pharmaceuticals), and Start-Up Tax Incentives (whereby tax exemptions are offered to start-ups for a limited period).

Despite these incentives, foreign investors often find the Indian tax system cumbersome and difficult to navigate:

* Complex Regulatory Framework: India’s multifaceted and frequently changing tax regime makes compliance difficult, hindering investor confidence.

* Confusing Tax Treaties: Ambiguities in tax treaties create uncertainty about tax liabilities and benefits.

* Multiple Tax Authorities: Multiple regulatory bodies contribute to inconsistent enforcement of tax policies.

* Lengthy Dispute Resolution Process: The protracted resolution of tax disputes further exacerbates investor apprehension.

* Administrative Burden: Extensive documentation and procedural requirements overwhelm foreign investors, limiting the effective use of tax incentives.

How Budget 2025 Could Shape India’s Foreign Investment Future

As India seeks to cement its position as a global economic powerhouse, the 2025 Budget offers an opportunity to address existing tax challenges and make the country more attractive to foreign investors. Key areas where fiscal policies could drive positive change include:

1. Simplification of the Tax System

To alleviate the compliance burden, the government could focus on simplifying the tax framework. A more streamlined and transparent system, with clearer guidelines on capital gains tax and a unified tax filing platform for foreign investors, could significantly improve the ease of doing business.

2. Reducing Capital Gains Tax

Introducing lower capital gains tax rates, particularly for long-term foreign investors, could make India more competitive compared to other emerging markets with lower tax rates. A preferential tax regime for substantial, long-term investments would help attract a steady flow of foreign capital.

3. Introducing Tax Breaks for Green and Digital Investments

India’s commitment to sustainable development and digital transformation could be supported by offering targeted tax incentives for foreign investors in sectors such as renewable energy, electric vehicles, and digital infrastructure. These incentives would attract foreign capital while aligning with India’s long-term goals of sustainability and digital growth.

4. Enhancing Tax Treaties and Double Tax Avoidance Agreements (DTAA)

To make India more appealing to foreign portfolio investments, the government could revise tax treaties and reduce withholding tax rates or simplify the procedure relating to the issuance of certificates for lower TDS. More clarity on the taxability of different types of income would enhance India’s position as a preferred investment destination.

5. Promoting FDI in Infrastructure and Manufacturing

The government could introduce specific tax breaks, such as accelerated depreciation or capital investment allowances, to incentivise foreign investment in critical infrastructure and manufacturing sectors. These measures would help reduce capital costs for foreign investors and promote growth in these vital areas.

As India seeks to strengthen its position as a global economic powerhouse, tax policy will play a pivotal role in attracting and retaining foreign investment. Budget 2025 presents an opportunity for the government to address current challenges, simplify the tax landscape, and introduce sector-specific incentives. By doing so, India can create an environment that encourages greater foreign investment, driving sustainable economic growth in the years to come.

Source: moneycontrol.com

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Thomas

Economic

The US economy expanded at a solid pace at the end of 2024, fueled by a generous tailwind from consumer spending that more than offset drags from a strike at Boeing Co. and much leaner inventory investment.

Inflation-adjusted gross domestic product increased an annualised 2.3% in the fourth quarter after rising 3.1% in the prior three-month period, according to the government’s initial estimate published Thursday. The median forecast in a Bloomberg survey of economists called for a 2.6% growth.

Consumer spending, which comprises the largest share of economic activity, advanced at a 4.2% pace — the first time since late 2021 that outlays have exceeded 3% in consecutive quarters. The acceleration was led by a pickup in motor vehicle sales.

At the same time, a closely watched measure of underlying inflation rose 2.5%, marking only the second quarterly acceleration since late 2022, the Bureau of Economic Analysis data showed. December inflation and spending figures are due Friday.

US Economy Ends 2024 With 2.3% GDP Growth, Boosted By Consumer_1

US stock index futures remained higher while Treasuries pared gains and the dollar pared losses.

The GDP figures cap another solid year for the world’s largest economy that defied expectations for a marked slowdown as consumers hung tough in the face of persistent inflation and high borrowing costs. That helps explain why the Federal Reserve is taking a more measured approach to future interest-rate cuts.

Chair Jerome Powell, speaking after the central bank held rates steady on Wednesday, said policymakers are waiting to see further progress on inflation and “do not need to be in a hurry to adjust our policy stance.”

He also said the economy is strong, which was further corroborated by the GDP report. A measure of underlying growth trends favoured by economists that includes consumer spending and business investment, known as final sales to private domestic purchasers, advanced at a robust 3.2% pace.

Source: theedgesingapore.com

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Samantha Luan

Economic

Industrial growth, the stock market and the rupee are sinking, and most consumers earn too little to buoy them, stymieing India’s drive to become a developed economy.

A year ago, India was bouncing back from a recession caused by Covid-19 with a spring in its step. The country had overtaken China as the most populous country, and its leaders were declaring India the world’s fastest-growing major economy.

This was music to the ears of foreign investors, and to India’s prime minister, Narendra Modi, who at every opportunity boasted about his country’s inevitable rise. Home to 1.4 billion people, an invigorated India could become an economic workhorse to power the rest of the world, which is stumbling through the fog of trade wars, China’s economic slowdown and Russia-Ukraine conflict.

India displaced Britain in 2022 as the world’s fifth-biggest economy, and by next year it is expected to push aside Germany in the fourth spot. But India has lost a step, revealing its vulnerabilities even as it moves up the global rankings.

The stock market, which soared for years, has just erased the past six months of gains. The currency, the rupee, is falling fast against the dollar, making homegrown earnings look smaller on the global stage. India’s new middle class, whose wealth surged like never before after the pandemic, is wondering where it went wrong. Mr. Modi will have to adjust his promises.

November brought the first nasty shock, when national statistics revealed that the economy’s annual growth had slowed to 5.4 percent over the summer. Last fiscal year, which ran from April through March, was clocked at 8.2 percent growth, enough to double the economy’s size in a decade. The revised outlook for the current fiscal year is 6.4 percent.

“It’s a reversion to trend,” according to Rathin Roy, a professor at the Kautilya School of Public Policy in Hyderabad. There was a brief period, 20 years ago, when India seemed poised to break into double-digit growth. But, Mr. Roy argued, that growth depended on banks pumping out loans to businesses at an unsustainable rate.

Ever since the government withdrew vast amounts of cash from circulation in 2016 in a vain effort to rein in underground commerce, Mr. Roy said, the economy has never recovered even its 8 percent pace. It only looked better, he said, because “you had the Covid dip, as happened in many economies. India’s economy didn’t get back in absolute size until last year,” later than most other countries.

The reasons behind the slowdown are up for debate. One effect is undeniable: Overseas investors have been heading for the exits.

“Foreign investment has taken the call that the Indian stock market is overvalued,” Mr. Roy said. “It’s quite logical that they would get out of pesky emerging economies and put their money where they can make more,” like on Wall Street, he added.

Investors who bought a broad mix of Indian stocks early in 2020 watched their worth triple by last September, as major market indexes hit record highs.

India's Economy Slows Down Just When It Was Supposed to Speed Up_1

The number of Indians buying stocks grew even more rapidly, which helped drive up prices. Ahead of the Parliamentary election in June, Mr. Modi’s right-hand man, Amit Shah, predicted that India’s new investor class would help sweep their party to victory. During Mr. Modi’s first two terms, the number of Indians holding investment accounts went from 22 million to 150 million, according to a study by Motilal Oswal, a brokerage house.

“These 130,000,000 people will be earning something, no?” Mr. Shah reasoned to The Indian Express, a newspaper. The new investors were clearly spending. In particular, the luxury and other high-end sectors were doing well: cars more than motorcycles, high-end electronics more than household basics.

But that prosperity, concentrated among the top 10 percent, left the other 90 percent wanting more. Mr. Modi’s party lost its majority in Parliament, though it retained control of the government. Expanded welfare payments, like the free wheat and rice the government distributed to 800 million people, helped.

Despite such programs, the Modi government has been fiscally conservative and keeps a watchful eye on inflation. It has focused spending on big-ticket infrastructure items, such as bridges and highways, that are supposed to entice private enterprise into making investments of their own.

Indian businesses still have to contend with excessive red tape, political interference and other familiar difficulties. The Modi government has tried to reduce those burdens, but in recent years it has focused on increasing economic supply.

India’s government bet big on building new airports, for example. But the airlines that were set to serve them are pulling out. Vacationers who would have flown to beachy places like Sindhudurg, between Mumbai and Goa, are not buying enough tickets to keep a terminal there open.

Arvind Subramanian, an economist at the Peterson Institute for International Economics in Washington, traces the lack of demand back to the broader state of employment.

“Jobs are not being created, so people don’t have incomes and wages are depressed,” he said. There aren’t enough stockholders to make up the difference. The national minimum wage, which many workers in the informal economy are never paid, is just $2 a day.

Mr. Subramanian, who was the country’s chief economic adviser during Mr. Modi’s first term, said the government has gone “stale, and bereft” of ideas for tackling such problems. “Ideas for long-term growth and boosting employment — that is what we’re missing now,” he said.

He thinks the rupee’s fall is only natural, and should have happened sooner. Until recently, the central bank was spending billions of dollars to prop up the value of the national currency.

The psychological effect of a weakening rupee can be painful, but the cost of keeping it at a fixed rate of exchange to the dollar was “extremely damaging for the national economy,” he said.

No one is happy to see growth slowing. The government’s current chief economic adviser, V. Anantha Nageswaran, told a news briefing in November that the bad news could be a blip. “The global environment remains challenging,” he said, with a strong dollar and suspense over the possibility of sudden policy moves in the United States and China.

A year ago, the hope was that India’s own economic engine could push it through the global headwinds. The missing ingredients, then as now, start with too many people having too little money in hand.

“There simply isn’t enough demand,” said Mr. Roy, the professor in Hyderabad. “The idea that you can expect supply to create its own demand has its limits,” he said.

“Regular people,” Mr. Roy said, those between the top 10 percent seeing big stock market gains and the bottom 50 percent struggling to get by, still “don’t earn enough to buy the basics.” About 100 million of these regular people qualify for free grain.

The government is expected to release a budget for the new fiscal year on Feb. 1. Mr. Nageswaran, the current economic adviser, has stirred hope that it may include tax cuts, putting more money in the hands of consumers.

“This idea that India needs tax cuts, it has the causation exactly wrong and reversed,” said the former economic adviser, Mr. Subramanian. “Consumption is weak because incomes are weak.”

Last month, Mr. Nageswaran told Assocham, a group of business leaders, that employers need to pay their workers more, noting that wages were stagnant. “Not paying workers enough will end up being self-destructive or harmful for the corporate sector itself,” he warned.