— Total CPI Marks 11th Straight Y/Y Drop As Fresh Vegetable Prices Slump
— Downward Pressure From Low Cost Mobile Phone Plans Intensifies
By Max Sato
In light of a recent setback in global energy markets, the pace of gasoline price increase on year decelerated in August, canceling the effect of the uptick in electricity charges. The downward pressure from low-cost monthly data plans introduced in April by major mobile phone carriers intensified last month after a major added a new, cheaper plan for low data usage in July.
Accommodations have been posting sharp gains, compared to a year earlier, when the government program to support the pandemic-hit tourism industry by subsidizing discounts pushed down hotel fees and train fares.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) was unchanged from a year earlier in August, as expected, after slipping 0.2% in July, which was the 12th straight year-over-year decline.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – marked the fifth straight drop, down 0.5% on year, after falling 0.6% in July after slumping 0.9% in the previous three months. This narrow measure is not receiving support from the recent pickup in energy markets.
* The total CPI dipped 0.4% in August, showing the 11th consecutive year-over-year slip after falling 0.3% in July. Volatile fresh food prices (lettuce, etc.) plunged 8.8% on year and pushed down the overall index by 0.38 percentage point after falling 4.2% (minus 0.17 point) the previous month.
* Among key components of the CPI basket of goods and services: Energy +5.5% y/y (+0.39 percentage point contribution) in August vs. +5.8% (+0.41 point) in July; gasoline +16.9% y/y (+0.32 point) vs. +19.6% (+0.35 point); electricity +0.9% (+0.03 point) vs. -0.3% (-0.01 point); food excluding perishables +0.3% (+0.07 point) vs. +0.1 (+0.02 point).
* The base effect remains until March next year: mobile communications fees
-44.8% y/y (-1.23 percentage points) in August vs. -39.6% y/y (-1.09 percentage points) in July.
* Household durable goods prices continued to show an uptrend: +5.3% y/y (+0.07 point contribution) in August vs. +4.4% (+0.06 point) in June. Demand for electric appliances and furniture remains solid as people are getting used to stay-home lifestyles during the pandemic.
* Accommodations +46.6% y/y (+0.33 point) in August vs. +17.3% (+0.15 point) in July. The recent increase was in reaction to the launch of the government’s “Go To Travel” program in late July 2020 to subsidize hefty discounts on hotel stays 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.
Govt, BOJ Downplay CPI Weakness
It changed its assessment on consumer prices to “firm” from “flat,” effectively upgrading the view for the first time in 17 months after downgrading it in March 2020 during the first wave of the global pandemic. The government does not say whether any change in its CPI assessment is an upgrade or a downgrade so that it would not affect the central bank’s policy stance.
For its part, the Bank of Japan also noted that the core CPI (excluding fresh food) minus the effects of the sales tax hike in October 2019, subsidies for private high school tuitions (April 2020) and those for traveling (July 2020), rose 0.6% on year in the April-June quarter after falling 0.3% in January-March 2021 and slipping 0.4% in the final quarter of 2020, while the core CPI was flat in Q2, dropped 0.4% in Q1 and slumped 0.9% in Q4.
These figures are from the BOJ’s latest quarterly Economic Outlook issued in July, before the government updated the CPI base year and revised weightings.
The government’s “Go To Travel” campaign pushed down the year-on-year rate of change in the core CPI (excluding fresh food) by around 0.3 to 0.4 percentage point for the August-December period of 2020 and by around 0.2 percentage point for fiscal 2020 to March 2021, according to the BOJ.
When only the effects of the rebound from last year’s decline are calculated (without considering the possibility of the government resuming the campaign any time soon), the BOJ estimates that the year-on-year rate of change in the core CPI will be pushed up by around 0.3 to 0.4 percentage point for the August-December period of 2021 and by around 0.2 percentage point for fiscal 2021 ending next March.
Looking ahead, the core CPI is expected to “increase gradually,” backed by energy prices and as the base effect of lower mobile phone charges dissipates, the BOJ said in a statement after the latest two-day policy meeting that ended on Wednesday.