Japan May Core CPI Posts 1st Y/Y Rise in 14 Months on Energy Pickup

By Max Sato

–Lower Mobile Data Fees at Govt Request To Weigh on CPI for Now
–Drop in Total CPI Eases on Smaller Fall in Fresh Food Prices

(MaceNews) – Japan’s core consumer price index edged up on the month to mark its first year-on-year gain in 14 months as higher energy costs continued to offset the impact of government-led mobile communications fee discounts, data from the Ministry of Internal Affairs and Communication released Friday showed.

However, the growth and inflation outlook remains uncertain.

Prime Minister Yoshihide Suga’s pet project to bring down mobile data costs, and thus help increase disposable household income, is playing a part in slowing the pace of Japan’s recovery from years of deflation.

Restrictions to combat the spread of coronavirus infections caused a GDP contraction in January-March and appear to have dampened consumption in the current quarter. Consumer spending slipped in Q1 after having led a rebound in the second half of 2020 from the pandemic-triggered slump seen earlier.

The Japanese government said Thursday it was easing restrictions on economic activity in Tokyo and other prefectures, effective Sunday, but decided to retain slightly less strict COVID-19 emergency measures until July 11.

The pace of vaccinations has picked up but Japan still lags behind other major economies, keeping many people cautious about dining out, traveling and gathering. Tired of restrictions, some people are ignoring official warnings, causing small clusters of infections.

The key points from CPI data:

The national average core consumer price index (excluding fresh food) rose 0.1% from a year earlier in May, matching the median economist forecast of a 0.1% rise and following a 0.1% drop in April. It was the first year-on-year gain since March 2020 (+0.4%).

The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – slipped 0.2% on year in May after falling 0.2% in April and rising 0.3% in March. This narrow measure is not receiving support from the recent pickup in energy markets.

Total CPI dipped 0.1% on year in May, with the pace of decrease decelerating from -0.4% in April. Fresh food prices fell 5.2% on year and trimmed the overall index by 0.23 percentage point after plunging 7.3% (-0.32 point) the previous month.

The biggest factor behind the year-on-year decline in the CPI was lower mobile communications fees, which fell 27.9% on year and pushed down the total CPI by 0.57 percentage point in May, compared to a 26.5% drop (-0.50 point) in April, when carriers introduced new plans with substantial discounts.

Among other key components of the CPI basket of goods and services: Energy jumped 4.2% y/y (+0.31 percentage point contribution) in May vs. +0.7% (+0.05 point) in April; gasoline +19.8% y/y (+0.37 point) vs. +13.5% (+0.26 point); food excluding perishables unchanged y/y (-0.01 point) vs. unchanged (+0.01 point).

Household durable goods prices remained on the uptrend, albeit at a slower pace at +2.3% on year (+0.02 point contribution) vs. +3.0% (+0.03 point) the previous month. Earlier, stay-home COVID lifestyles pushed up demand for electric appliances and furniture.

Accommodations +0.9% y/y (+0.01 point) in May vs. +3.1% (+0.03 point) in March. The downward pressure from hotel fees has faded after the government suspended its controversial program to support the tourism industry with subsidized hefty discounts on domestic travel, effective late December.

Contact this reporter: max@macenews.com.

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