By Max Sato
–Gasoline Prices Now Up, But Utilities Still Push Down Overall Energy Costs
–Hotel Fees Stop Falling; Appliances Prices On Uptrend In Stay-Home Lifestyles
(MaceNews) – Consumer prices in Tokyo, a leading indicator of the national average, gained slightly in March from February, leading to a smaller year-on-year drop in the core reading, amid a gradual pickup in international energy markets and unwinding of subsidized hotel discounts, data from the Ministry of Internal Affairs and Communications released Friday showed.
But CPI’s slight uptrend in recent months does not necessarily reflect a sustained economic recovery from last year’s slump caused by the pandemic. The gross domestic product is forecast by economists to have contracted in the January-March quarter after a rebound in the previous two quarters.
The output gap is estimated by the Cabinet Office to have remained in negative territory in the final quarter of 2020, at -3.5 percentage points, although it narrowed from -6.0 points in July-September and -10.6 points in April-June.
Two of the three key CPI measures were still slightly below year-earlier levels in March, mainly due to lower utilities charges. The base-year effect of government subsidies for private university tuition that began last April lingered.
The key points from the CPI data:
- The core consumer price index (excluding fresh food) in the capital’s 23 wards dipped 0.1% on year in March, after falling 0.3% in February and improving from a 0.9% slump in December. The figure came in firmer than the median forecast of economists of a 0.2% drop. It was the eighth straight month of year-on-year decline.
- The core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – rose 0.3% on year in March, marking the third consecutive y/y gain after rising 0.2% in February. It was the largest gain since +0.6% in July last year.
- The total CPI fell 0.2% on year this month after dipping 0.3% in February and plunging 1.2% in December. Utilities costs showed a smaller drop while fresh food prices posted a larger decline.
- The biggest factor behind the year-on-year decline in the core and total CPI remained energy costs (particularly electricity and city gas), which have been sliding from year-earlier levels. Energy prices fell 7.8%, lowering the total index by 0.41 percentage point (vs. -9.8%, -0.51 point the previous month). However, gasoline prices rose 2.1% y/y this month, pushing up the index by 0.02 percentage point after falling 5.2% and trimming it by 0.04 point last month.
- Food excluding perishables unchanged y/y in March (-0.01 percentage point) vs. -0.1% (-0.03 point) in February.
- Accommodations also unchanged y/y (zero contribution) in March vs. -5.1% (a negative 0.08-point contribution) in February. The government suspended the controversial “Go To Travel” campaign, effective on Dec. 28, after seeing a spike in new coronavirus cases. The program was launched in July to subsidize hefty discounts on hotel fees and domestic transportation costs, and was aimed at shoring up the hard-hit tourism industry.
- Among gainers, household durable goods, such as heat pumps, +7.0% y/y (a positive 0.07-point contribution) in March vs. +4.0% (+0.04 point) in February. Demand for electric appliances and furniture remained strong in stay-home lifestyles during the pandemic.
Uncertain Inflation Outlook
Japan’s government has eased some restrictions on economic activity, ending its state of emergency Sunday for Tokyo and three neighbouring prefectures that it declared in early January and extended in February. The restrictions for some other regions had been lifted earlier.
Opinion polls showed that many people were opposed to easing COVID-19 safety rules when there is uncertainty that Japan may be hit by a fourth wave of new coronavirus cases as people lower their guard in mild spring weather.
Before the pandemic parks, bars and restaurants were packed with people from late March to early April for cheery blossom viewing as well as workplace parties around the April 1 fiscal year start.
The prices for hotels and airfares may pick up slightly if people feel safer to travel or go to events, but telecommuting is expected to remain in place for some people, as it is a huge cost-saver for large corporations that can afford the shift. That would limit spending on public transportation, clothing and cosmetics.
Energy prices have been picking up in recent months on Chinese economic recovery, but they are also affected by a swing in sentiment in reaction to positive and negative news about the efficacy of coronavirus vaccinations and the pace of their rollout.
The deflationary mindset among households and businesses is stubborn in Japan. Companies are generally hoarding cash, leaving wage growth subdued. Income inequality between regular employees and temporary workers remains wide and many women are still paid less than their male counterparts.
For nearly eight years, the Bank of Japan has tried to convince the public that massive cash injections into the financial system will keep borrowing costs low and boost the economy, which would produce brighter prospects for a positive cycle of higher corporate earnings, wage hikes and more vibrant consumer spending.
But lifestyles had been changing even before the pandemic hit the world last year. Both the government and central bank are aware that new types of demand must be met by more innovative kinds of supply. Structural change and government reform are taking time.
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Contact this reporter max@macenews.com.
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