–BOJ Sees Core Price Drop Continuing
By Max Sato
(MaceNews) – The global pandemic continued to depress Japanese consumer prices in September as economic activity remained restrained amid slower declines in energy costs, but the year-on-year decline was slightly smaller than expected in light of less drastic cuts in tourism prices, data from the Ministry of Internal Affairs and Communication released Friday showed.
The key points:
* The national average core consumer price index (excluding fresh food) fell 0.3% from a year earlier in September after slumping 0.4% in August, coming in slightly firmer than the median economist forecast of a 0.4% drop. The decline in August was the first y/y decrease in three months, and was caused mainly by government-sponsored large discounts on hotel fees aimed at easing the impact of the coronavirus on the tourism industry. In September, accommodations costs again posted a double-digit percentage drop but it was smaller than in August, leading to the smaller drop in CPI.
* Softer energy prices compared to year-earlier levels as well as government-subsidized free education of preschoolers, which began October last year, also dampened the overall price trend.
* The underlying inflation rate measured by the core-core CPI (excluding
fresh food and energy) was unchanged from a year before in September after dipping 0.1% the previous month, which was the first fall in more than three years. The consensus forecast was -0.1%.
* Total CPI was flat year on year in September after rising 0.2% in August. The impact of poor crops after a long rainy season through July and a severe heat wave in August continued to push up food prices, along with higher dining out prices. Property insurance premiums and mobile communications fees also maintained y/y gains. These higher costs were offset by persistently lower energy and education prices.
* In the total CPI measure, energy costs fell 3.5% y/y, pushing down the indicator by 0.27 percentage point, the same as in August, while prices for food excluding perishables – another key item in the CPI basket of goods and services – gained 0.8% with a positive 0.18 percentage-point contribution (vs. +0.9%, 0.20 point in August). Accommodations prices continued to plunge in September, down 30.0% and pushing down total CPI by 0.35 percentage point, but their negative impact on overall prices was smaller than in August (-32.0%, -0.42 point). Costs for overseas holiday tours slumped 6.5% with a negative 0.03 percentage-point contribution to total CPI (vs. -3.2%, -0.02 point in August). Household durable goods prices rose 2.4% with a positive 0.03 percentage-point contribution (vs. +2.5%, 0.03 point in August).
Slow inflation outlook:
* The base-year effect of the sale tax hike in October 2019 will disappear in coming months, which is expected to put a damper on already muted price increases. Layoffs and salary cuts during the pandemic are also likely to limit consumer spending on some items, discouraging firms from raising retail prices.
* Both the government and the Bank of Japan regard the current CPI trend as being “flat” mainly due to the effects of past crude oil price drops. The central bank has noted that the core CPI reading is likely to stay “negative for the time being,” hit by COVID-19 and earlier declines in energy costs, but it hasn’t given up hope for eventually guiding prices toward its 2% inflation target, saying consumer prices should “turn positive and then increase gradually.”
* The BOJ board is scheduled to hold a two-day policy meeting next week, ending at around midday on Thursday, Oct. 29. No major change in its easing policy stance is expected. The bank will also release its quarterly Outlook Report on Oct. 29. In its July report, the board said its median forecast for core CPI was a 0.5% fall in the current fiscal year ending in March 2021, followed by a 0.3% rise in fiscal 2021 and a 0.7% increase in fiscal 2022.