–Processed Food Prices Still 9% Above Year-Earlier Levels, Hotel Fees Up Sharply on Traveling Demand
–Total CPI Steady at +3.3% Y/Y, in +3.2% to +3.5% Range After Hitting 41-Year High of +4.3% in January
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Ticks Up Further to 4.3% from June’s 4.2%
By Max Sato
(MaceNews) – Consumer inflation in Japan moderated to 3.1% in July from 3.3% in June in the core measure (excluding fresh food prices) after electricity and natural gas suppliers trimmed prices for households to reflect lower energy import costs and the base effect of last year’s mobile phone price hikes had waned, data from the Ministry of Internal Affairs and Communication released Friday showed.
But processed food prices remained more than 9% above year-earlier levels (pushing up the CPI by 2 percentage points) and the upward pressure on daily necessities continued, leaving the total CPI annual rate at 3.3% in July. Both telecommunications charges and hotel fees rose sharply while nominal wage hikes continued to push up overall service costs.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) picked up again to a 42-year high of 4.3% after easing to 4.2% in June from 4.3% in May, indicating that the effects of widespread retail price hikes are lingering. The year-over-year decline in corporate import costs that began in April is likely to ease consumer prices with a six-month delay.
In its quarterly Outlook Report for July, the Bank of Japan board revised up its forecast for consumer inflation for fiscal 2023 ending next March to 2.5% from 1.8% projected in April while predicting that inflation will lose some steam from 3.0% in fiscal 2022 and fail to be anchored around the bank’s 2% target in a sustainable manner, averaging 1.9% (revised down from April’s 2.0%) in fiscal 2024 and 1.6% (unchanged) in fiscal 2025.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.1% from a year earlier in July, below the median economist forecast for a 3.3% rise (forecasts ranged from 3.0% to 3.2%). It is the 23rd straight year-over-year increase after rising 3.3% in June, 3.2% in May, 3.4% in April, 3.1% in both March and February (the first deceleration in 13 months) and 4.2% in January.
* The 4.2% rise in January is a 41-year high, the largest increase since the 4.2% gain in September 1981, with or without the direct impact of the sales tax hikes in 2014 (from 5% to 8%) and in 1997 (from 3% to 5%) and the introduction of the sales tax in 1989. The tax was further raised to 10% in 2019 but had only a limited impact on prices.
* Service prices in Japan have moved up in recent months as more firms are raising wages to secure workers, although the average cash earnings per employee are falling in real terms. Service prices excluding owners’ equivalent rent rose 2.9% on the year in July, accelerating from 2.3% in June. Goods prices excluding fresh food gained 4.3%, easing from a 4.9% rise the previous month.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – rose 4.3% on the year in July, following increases of 4.2% in June, 4.3% in May, 4.1% in April, 3.8% in March and 3.5% in February. It is the 16th straight year-over-year increase and was below the median economist forecast for a 4.4% rise (forecasts ranged from 4.3% to 4.4%). The 4.3% rise in July is the largest in 42 years, since the 4.5% increase June 1981. This narrow measure is without the effects of energy cost fluctuations. It has been pushed up by markups in various items including processed food.
* The total CPI rose 3.3% on year in June, marking the 23rd consecutive year-over-year increase, after rising 3.3% in June, 3.2% in May, 3.5% in April, 3.2% in March, 3.3% in February and 4.3% in January. It was in line with the median forecast of a 3.3% rise (forecasts ranged from 3.2% to 3.4%). Fresh food prices, a volatile factor, rose 6.5% on year and pushed up the overall index by 0.26 percentage point after rising 3.8% (up 0.16 point) the previous month. The 4.3% increase January’s total CPI is a 41-year high, the largest since the 4.3% rise in December 1981.
* Among key components of the CPI basket of goods and services, energy prices slumped 8.7% on year in July, pushing down the CPI by 0.74 percentage point, after falling 6.6% in July with a negative 0.56-point contribution, 8.2% (minus 0.69 point) in May, 4.4% (minus 0.37 point) in April, 3.8% (minus 0.32 point) in March and 0.7% (minus 0.06 point) in February, which was the first drop since March 2021.
* The government has contained retail gasoline prices by providing subsidies to refineries. It also began providing subsidies for electricity and natural gas in January (reflected in February bills onward) and the program will continue through September, mitigating the impact of the latest markups by power companies that took effect in June. In the latest development, electricity and gas suppliers lowered retail prices in July, citing recent drops in import costs for natural gas and coal.
* Gasoline prices posted their first year-on-year rise in six months, rising 1.1% and adding 0.02 percentage point to the CPI in July, reflecting a rebound in crude oil import costs and the move by the Japanese government to scale back the subsides to refineries. The increase followed a 1.6% drop in June, with a negative 0.04-point contribution.
* Electricity charges dropped 16.6% on the year (minus 0.67-point contribution) in July after falling 12.4% (minus 0.49 point) in June, 17.1% (minus 0.69 point) in May, 9.3% (minus 0.36 point) in April, 8.5% (minus 0.32 point) in March and 5.5% (minus 0.21 point) in February, the first drop since July 2021, after rising 20.2% (plus 0.75 point) in January. The prices for “city gas” (natural gas supplied through pipelines) dipped 9.0% with a negative 0.10-point contribution in July, after posting their first year-over-year decline in 21 months in June, down 2.8% (minus 0.03 point), and rising 1.4% (plus 0.02 point) in May, 5.0% (plus 0.06 point) in April, 10.0% (plus 0.11 point) in March, 16.6% (plus 0.17 point) in February and 35.2% (pls 0.35 point) in January.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 25th straight year-over-year increase, up 9.2% (plus 2.08 points) after rising 9.2% (plus 2.07 points) in the previous two months. It remains the largest increase in more than 46 years, since the 9.9% surge in October 1975. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), snacks (ice cream) and soft drinks.
* The prices for household durable goods marked their 16th consecutive gain from year-earlier levels but the pace of increase decelerated further to 6.0% (plus 0.09-point contribution) in July from 6.7% (plus 0.10 point) in June, 9.0% (plus 0.13 point) in May and six months of double-digit percentage gains through February. Producer import prices fell on the year for the fourth straight month in July as global energy and commodities markets have generally eased.
* Mobile phone handset prices rose a slight 0.5% on the year in July, providing zero contribution to overall consumer prices, after rising 19.3% in June, when it added 0.16 point to the CPI. Some of this lower contribution was offset by a 10.2% surge (positive 0.13 point) in mobile phone communications fees in July, which was up sharply from a 2.9% gain in June with only a 0.04-point contribution to the CPI.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, jumped 15.1% on the year in July, raising the CPI’s year-over-year increase by 0.15 percentage point, after rising 5.5% in June with a positive 0.05-point contribution. Pent-up demand for traveling remains strong and the number of visitors from overseas has been rising, offsetting the slight downward pressure from travel subsidies.