By Max Sato
(MaceNews) – Consumer prices in Tokyo, a leading indicator of the national average, posted a larger-than-expected drop in November, amid falling energy prices and a controversial government program to support the pandemic-hit tourism industry with hotel and transport discounts, data from the Ministry of Internal Affairs and Communications released Friday showed.
The key points:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards recorded the sharpest drop in more than eight years in November, down 0.7% on year and coming in weaker than the median economist forecast of a 0.6% drop. It was the fourth straight month of year-on-year decline after falling 0.5% in October, and the largest decrease since -0.8% in May 2012.
* The core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – slipped 0.2% on year in November for the second y/y fall in a row, as expected, after sliding 0.2% in October.
* The total CPI plunged 0.7% after falling 0.3% in October, which was the first year-over-year decrease in three years in the absence of the base-year effects of the October 2019 sales tax hike to the current 10% from 8%.
* The biggest factor behind the sharper declines in both the total and core readings, compared to the previous month, was energy costs (particularly electricity and city gas), which continued to slump from year-earlier levels, down 8.9% and lowering the total index by 0.47 percentage point (vs. -5.6%, -0.29 point in October).
* Processed food prices marked the first year-on-year fall in seven years, down 0.1% in October after +0.2% in October and +0.9% in September, pushing down the total CPI by 0.02 percentage point in a stark contrast to a 0.05-point positive contribution seen the previous month.
* Accommodations prices slumped 34.4% in November, trimming the total CPI by 0.55 percentage point, due to the government-subsided domestic travel support program. The pace of the decrease decelerated from -37.1% (a 0.59-point negative contribution) in October, probably because some hotels raised prices amid solid demand, a ministry official said.
* Critics have been warning that the “Go To Travel” campaign, which was launched in July, could cause a spike in coronavirus cases as people move across the prefectures. In light of record numbers of infections in many cities, the government this week has suspended discounts applied to the costs for traveling to two hot spots – Sapporo in the north and Osaka in the west – for three weeks.
Uncertainty over growth and inflation
“The price-supporting, base-year effect of the consumption tax increase has tapered off and there are more factors pushing down prices, such as the government program to subsidize free university education for some students that began in April,” the ministry official told Mace News. “We are monitoring how rising coronavirus cases will affect accommodations and theme park prices in December.”
Looking ahead, the ministry official also said the CPI data team is watching for the effects of Prime Minister Yoshihide Suga’s pet project of urging mobile carriers to bring down communications costs sharply.
The consensus among government and Bank of Japan policymakers is unlikely to change for now. They see domestic prices as being “flat.”
The BOJ’s nine-member policy board expects the core CPI to pick up gradually in the next fiscal year onward (+0.4% in fiscal 2021 and +0.7% in fiscal 2022) as the economy crawls out of the pandemic-caused slowdown. BOJ officials are patiently looking toward eventually hitting their 2% inflation target while government leaders have long stopped mentioning the need to achieve the target soon in the face of the stubborn deflationary mindset among households and businesses.
Japan’s government on Wednesday warned that global and domestic economies could come under further attack from recent spikes in coronavirus infections, according to its monthly report released by the Cabinet Office.
The government also maintained its cautiously optimistic view that both the domestic and global economies are “showing signs of a pickup,” a statement unchanged since July when it revised up its overview.
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Contact this reporter: max@macenews.com.
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