–Total CPI at 3-Month High of +2.8% Y/Y Vs. +2.5% in April
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases to 20-Month Low of 2.1%
By Max Sato
(MaceNews) – Consumer inflation in Japan accelerated in two of three key measures in May as the government raised the renewable energy charge that users pay for greener electricity but the largest contribution to the year-over-year increase in the CPI remains processed food prices, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core CPI (excluding fresh food prices), closely watched by the Bank of Japan for its policy stance, rose 2.5% on year in May after rising at a three-month low of 2.2% in April and 2.6 percent in March, coming in slightly below the consensus call of a 2.6% increase. The year-over-year increase in the total CPI rose to a three-month high of 2.8% after easing to 2.5% in April from 2.7% in March. It was also below the median forecast of a 2.9% rise.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) decelerated to a 20-month low of 2.1% from 2.4%, also just under the median forecast of a 2.2% rise. The annual rate for this narrow indicator had been at or above 3.0 percent from December 2022 until February 2024.
Overall energy prices jumped 7.2% on year in May, pushing up the CPI by 0.54 percentage point, after edging up 0.1% with a slightly positive 0.01-point contribution in April. Food prices excluding perishables continued to ease to a 3.2% increase from 3.5% but this category remains the largest contributor, raising the CPI by 0.76 point, although it is smaller than plus 0.83 point seen the previous month.
Services costs have led overall inflation until recently as firms are raising wages to secure workers amid widespread labor shortages. Service prices excluding owners’ equivalent rent rose 2.2% on the year in May, pushing up the total CPI by 0.71 percentage point, following a 2.5% rise (plus 0.79 point) in April. Goods prices excluding fresh food gained 3.5% (plus 1.69 points), rising sharply from a 2.6% rise (plus 1.28 point) as utility costs showed a hefty increase in May after falling for more than a year.
In coming months, the BOJ board is expected to raise the overnight interest rate target gradually. At its latest meeting on June 13-14, the nine-member board decided in a unanimous vote to hold the overnight interest rate target steady in a range of 0% to 0.1% for the second straight meeting after conducting its first rate hike in 17 years and ending the seven-year-old yield curve control framework in March.
Other details from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.5% from a year earlier in May for the 33rd year-on-year increase, up from 2.2% in April. It is well below the 4.2% surge in January 2023, which was a 41-year high and the largest increase since the 4.2% gain in September 1981.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 2.1% on the year in May for the 26th straight year-over-year increase, slowing further from 2.4% in April. The pace of increase remains the slowest since the 1.8% gain in September 2022. The 4.3% annual rate recorded in May, July and August 2023 was the largest in 42 years, since the 4.5% increase June 1981.
* The total CPI rose 2.8% on year in May for the 33rd consecutive year-over-year increase, up from 2.5% in April and matched the 2.8% rise in February. The 4.3% increase in January 2023 was a 41-year high, the largest since the 4.3% rise in December 1981. Fresh food prices, a volatile factor, rose 8.8% on year and pushed up the overall index by 0.38 percentage point in April after rising 9.1% (up 0.38 point) the previous month.
* Among key components of the CPI basket of goods and services, energy prices jumped 7.2% on year in May, pushing up the CPI by as much as 0.54 percentage point, after edging up 0.1% with a positive 0.01-piont contribution in April. This compares with a 12.1% drop (minus 1.07 points) at the start of the year. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 4.5% on the year, adding 0.09 percentage point to the CPI, little changed from a 4.4% gain (a positive 0.09-point contribution) the previous month.
* Electricity charges soared 14.7% on year (a positive 0.47-point contribution) after sliding 1.1% (minus 0.04 point) in April and plunging 21.0% (minus 0.90 point) in January. In February 2023, they marked the first drop since July 2021. The government began providing utilities subsidies in January 2023 (reflected in February bills onward). The program was extended until the end of May 2024.
* The prices for natural gas supplied to homes fell 3.2% with a negative 0.03-point contribution, with the year-on-year decline shrinking further from a 5.9% drop (minus 0.07 point) in April from a 22.8% plunge (minus 0.30 point) in January.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 35th straight year-on-year increase but the pace slowed further to 3.2% (plus 0.76 point) in May from 3.5% (plus 0.83 point) in April. The pace of increase has eased from a recent peak of 9.2% (plus 2.08 points) in August and July 2023, which was the largest increase in more than 46 years since the 9.9% surge in October 1975.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 14.7% on year (plus 0.15 point) in April, slowing from 18.8% (plus 0.19 point) in April. The 59.0% jump (plus 0.43 point) in December 2023 was in reaction to a slump in hotel fees in late 2022. The government in October that year began subsidizing domestic travel under a new nationwide program to support the pandemic-hit tourism industry. It was phased out by the end of 2023.