Analyzing the Structural Dynamics of Japan’s Consumer Prices: A Component Decomposition Approach

This study investigates the structural dynamics of consumer prices in Japan by analyzing monthly Consumer Price Index (CPI) data for ten major categories from January 1970 to December 2024. Each category's CPI is decomposed into trend, seasonal, and cyclical components using an integrated moving linear model approach that simultaneously performs seasonal adjustment and trend-cycle decomposition. Unlike conventional methods, this approach enables the concurrent estimation of trend and seasonal components while iteratively extracting cyclical fluctuations, without imposing restrictive probabilistic assumptions. The resulting components reveal time-varying features such as shifts in seasonality, changes in trend growth rates, and variations in cyclical amplitudes. By further examining interrelationships among categories, the analysis uncovers structural changes, divergence and convergence patterns, and evolving linkages with macroeconomic conditions. Beyond offering a comprehensive understanding of the Japanese CPI fluctuations, this study demonstrates a methodological framework that can be applied to other economies for analyzing long-term structural transformations and short-term dynamics. Our findings provide insights relevant to inflation monitoring, macroeconomic stability, and the broader literature on structural change and economic dynamics.