–Total CPI Picks Up to 3-Month High of +3.3% After Moderating to 12-Month Low of +3.0% in September
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases Further to 7-Month Low of 4.0% from 4.2% in September, 42-Year High of 4.3% in August
By Max Sato
(MaceNews) – Consumer inflation in Japan picked up slightly in two of the three key measures in October as reduced subsidies for electricity and natural gas utilities slowed the sharp drop in overall energy costs and hotel fees jumped on pent-up demand, more than offsetting the effects of smaller processed food markups, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core measure (excluding fresh food prices), which is closely watched by Bank of Japan policymakers, rose a slightly lower-than-expected 2.9% on year, led by peaking but still elevated prices for processed food and rising service costs, after easing to a 13-month low of 2.8% in September from 3.1% in August. Energy prices dipped 8.7% on year, with the pace of decline decelerating from 11.7% in September. The prices for food excluding perishables were 7.6% above year-earlier levels, slowing from 8.8% in September.
The year-over-year increase in the total CPI also accelerated to 3.3%, just under consensus, after slowing to 3.0% in September from 3.2% in August. Service prices have been rising steadily as many firms have raised wages to secure workers. Pent-up demand for traveling among Japanese and resumed group tours from China boosted hotel fees, helping push up the inflation rate.
By contracts, underlying inflation measured by the core-core CPI (excluding fresh food and energy) moderated further to a seven-month low of 4.0%, just below the median forecast, from 4.2% in September and a 42-year high of 4.3% recorded in August, July and May.
In its quarterly Outlook Report for October, the Bank of Japan board revised up its core CPI forecast for fiscal 2023 ending next March further to 2.8% from 2.5% forecast in July, and jacked up its projection for fiscal 2024 to 2.8% from 1.9%. The board’s median forecast for fiscal 2025 is 1.7%, revised up slightly from 1.6%, but that would be still below its 2% inflation target as the pass-through impact of high import costs is set to wane.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.9% from a year earlier in October, just below the median economist forecast of a 3.0% rise (forecasts ranged from 2.9% to 3.2%). It is the 26th straight year-over-year increase after rising 2.8% in September (the slowest since 2.8% in August 2022), 3.1% in both August and July and 3.3% in June. The slowdown to 3.3% in February was the first deceleration in 13 months after rising to 4.2% in January from 4.0% the previous month.
* The 4.2% rise in January was 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 been on the rise in recent months as more firms are raising wages to secure workers, although real wages are still nearly 3% below year-earlier levels. Service prices excluding owners’ equivalent rent rose 3.1% on the year in October, after rising 2.9% in September and 3.0% in August. Goods prices excluding fresh food gained 3.6%, slowing from 3.5% in September and 4.1% in August.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 4.0% on the year in October, following increases of 4.2% in September, 4.3% in both August and July, 4.2% in June, 4.3% in May and 4.1% in April. It is the 19th straight year-over-year increase but was the slowest since the 3.8% gain in March 2023 and just below the median economist forecast of a 4.1% rise (forecasts ranged from 4.0% to 4.1%). The 4.3% rise was 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 October for the 26th consecutive year-over-year increase following increases of 3.0% in September (the slowest since 3.0% in September 2022), 3.2% in August and 3.3% in both July and June. It was also just under the median forecast of a 3.4% rise (forecasts ranged from 3.2% to 3.7% gains). Fresh food prices, a volatile factor, surged 14.1% on year and pushed up the overall index by 0.59 percentage point after rising 9.6% (up 0.40 point) the previous month. The 4.3% increase January’s total CPI was 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 dipped 8.7% on year in October, pushing down the CPI by 0.75 percentage point, after falling 11.7% with a negative 1.00-poing contribution in September. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 5.0% on the year, adding 0.11 percentage point to the CPI in October, after rising 8.7% (a positive 0.19-point contribution) in September and posting their first year-over-year rise in six months in July with a 1.1% gain (plus 0.02 point). Retail gasoline prices hit record highs from late August to early September.
* Electricity charges fell 16.8% on year (a negative 0.69-point contribution) in October after slumping 24.6% (minus 1.01 points) in September. In February 2023, they marked the first drop since July 2021. The government began providing utilities subsidies in January (reflected in February bills onward). The program was originally scheduled to end in September but was extended until the end of 2023.
* The prices for natural gas supplied to homes slipped 13.8% with a negative 0.16-point contribution in October, after falling 17.5% (minus 0.20 point) in September and posting their first year-over-year decline in 21 months in June, down 2.8% (minus 0.03 point).
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 28th straight year-over-year increase but the pace slowed to 7.6% (plus 1.74 points) in October from 8.8% (plus 2.01 points) in September and 9.2% (plus 2.08 points) in August and July, which was 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 (curry), eating out (Korean barbecue), snacks including ice cream (the heat wave lingered) and soft drinks, as seen in recent months.
* The prices for household durable goods marked their 19th consecutive gain in October. The pace of increase accelerated to 3.2% (plus 0.05-point contribution) after decelerating to 1.5% (plus 0.02 point) in September from 3.0% (plus 0.04 point) in August, 6.0% (plus 0.09 point) in July and 6.7% (plus 0.10 point) in June and six months of double-digit percentage gains through February.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, jumped 42.6% on year (plus 0.35-point contribution) in October after rising 17.9% (plus 0.17-point contribution) in September, 18.1% (plus 0.19 point) in August and 15.1% (0.15 point) in July. People have been traveling more freely since the Japanese government widely eased Covid public health restrictions in May. The number of visitors from other countries has also recovered to pre-pandemic levels.
* The higher contribution of hotel fees alone offset the combined downward pressure from two items. The premiums on property and earthquake insurance rose 3.8% on year in October with a positive 0.03-piont contribution, down from 13.2% rise (plus 0.10 point). Public broadcaster NHK’s monthly licensing fees for all viewers were reduced on Oct 1, down 10.2% in the CPI data with a negative 0.04-point contribution, compared to being unchanged on year in September.
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