— Total CPI Marks 10th Straight Y/Y Fall, Also Reversing Slight Pickup
— July’s Y/Y Declines in All Major CPI Measures Decelerate from June
— Higher Energy, Some Food, Appliances Costs Ease Mobile Phone Downward Pressure
By Max Sato
(MaceNews) – Japan’s core consumer prices reversed recent modest gains backed by higher energy costs, posting the 12th straight year-on-year drop in July, data from the Ministry of Internal Affairs and Communication released Friday showed. The government has shifted the base year to 2020 from 2015 and updated the CPI basket of goods and services in a routine move to correct the statistics’ upward bias and reflect the latest lifestyles.
However, the pace of year-on-year declines in all three major CPI categories decelerated in July from June, thanks to higher prices for energy (gasoline, utilities), some food and electric appliances (refrigerators). The downward pressure continued to come from low-cost monthly data plans introduced in April by major mobile phone carriers under pressure from the government to slash user fees.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) slipped 0.2 from a year earlier in July under the 2020 base year, posting the 12th straight y/y decline but coming in stronger than the median economist forecast of a 0.4% drop. The year-on-year change for June has been revised down to -0.5% from +0.2% under the 2015 base year. Previously, May’s +0.1% (revised down to -0.6%) was the first y/y gain in 14 months.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – marked the fourth straight y/y drop, down 0.6% after slumping 0.9% in the previous three months (-0.2% in each of June, May and April under the previous formula). This narrow measure is not receiving support from the recent pickup in energy markets.
* The total CPI dipped 0.3% on year in July, showing the 10th consecutive year-on-year slip after falling 0.5% in June (revised down from +0.2%, which was the first rise in 10 months). Volatile fresh food prices fell 4.2% on year and pushed down the overall index by 0.17 percentage point after rising 0.7% (+0.03 point) the previous month.
* Among key components of the CPI basket of goods and services: Energy +5.8% y/y (+0.41 percentage point contribution) in July vs. +4.3% (+0.31 point) in July; gasoline +19.6% y/y (+0.35 point) vs. +17.9% (+0.31 point); electricity -0.3% (-0.01 point) vs. -1.7% (-0.06 point); food excluding perishables +0.1% (+0.02 point) vs. -0.1 (-0.02 point). Some previous figures were revised.
* The base effect remains until March next year: mobile communications fees -39.6% y/y (-1.09 percentage point) in July vs. -38.5% y/y (-1.04 percentage point) in June. The previous figures were revised down sharply after the CPI basket was revamped.
* Household durable goods prices continued to show an uptrend: +4.4% y/y (+0.06 point contribution) in July vs. a revised +1.9% (+0.03 point contribution) in June. Demand for electric appliances and furniture remains solid as people are getting used to stay-home lifestyles during the pandemic.
* Accommodations +17.3% y/y (+0.15 point) in July vs. +0.6% (+0.01 point) in June. The sharp gain in July was in reaction to the launch of the government program in late July 2020 to subsidize hefty discounts on hotel stay and transportation costs aimed at supporting the tourism industry. It has been suspended since late December amid criticism that it had caused a spike in coronavirus cases.
BOJ’s Uphill Battle Toward 2% Target
While energy and other raw material costs have risen from last year, the Bank of Japan is still fighting an uphill battle to guide consumer prices from around zero toward its stable 2% inflation target, which Japan has never achieved.
The deflationary mindset among households and businesses remains stubborn and growth prospects have been clouded by prolonged restrictions on economic activity during the pandemic.
On Aug. 2, the fifth wave of the pandemic since April last year initially forced the government to expand the areas of strict restrictions from Tokyo and Okinawa to three prefectures around the capital as well as Osaka, a western commercial hub, effective until Aug. 31.
New cases caused by the more infectious Delta variant continued to surge across many regions, partly because some people ignored the official request to stay home and gathered around stadiums and along the roads to watch Olympic games without keeping social distance while others flocked to bars and restaurants.
This prompted the government on Tuesday to expand the areas of its COVID-19 state of emergency from six to 13 prefectures, all in place until Sept. 12. The areas under less strict emergency measures were also increased from six to 16 prefectures, which means business hours are shortened and flows of people are restricted in 29 out of Japan’s 47 provinces, or about 60% of the total.
CPI Downward Revisions Under 2020 Base Year (released Aug. 6)
The government’s bid to improve the accuracy of its CPI data showed the gradual pickup in consumer prices, led by the energy market recovery seen earlier this year, has been replaced by price drops.
On Aug. 6, the government said the latest update to its CPI formula has resulted in fairly large downward revisions in recent months from the figures calculated on the previous base year and weighting.
The core consumer price index, which excludes fresh food but includes energy prices, slumped 0.5% on year in June, revised down from a 0.2% rise as reported last month.
Under the new formula, the negative contribution of mobile communications fees increased as their weighting rose after major carriers introduced new plans at a large discount in April under heavy pressure from the government. The lower weighting of gasoline against the overall CPI basket led to a slight drop in its positive contribution. A higher weighting of city water raised its share of pushing up prices.
The year-on-year change in the core reading was revised down to -0.6% in May from +0.1%; it was -0.9% in April under the new formula, down sharply from -0.1%. The downward revision was smaller for March at -0.3%, compared to -0.1% under the previous formula. The revisions to the first two months of 2021 were limited to a negative 0.1 percentage point.
Five years ago, the base-year change from 2015 from 2010 resulted in only slight revisions (some are upward, others downward) or no changes from the figures base on the previous base year and weighting.
In the past, the revision led to a 0.6 of a percentage point downgrade of CPI in the re-weighting in 2011, and negatively affected CPI by 0.4 point, 0.2 point and 0.1 point in the previous 5-year updates.