–BOJ Board Sees CPI Jump in FY22 as Temporary; FY23 CPI to Slip Back to 1%
–Utilities, Food Prices Lead Inflation; Impact of Energy Market Spike Seen Fading Next Year
–Energy Prices Post 1st Slowing in Current Y/Y Rise Phase; Govt Subsidies Capping Gasoline Markups
By Max Sato
(MaceNews) – The year-on-year rise in consumer prices in Tokyo, the leading indicator of the national average, leapt to around the Bank of Japan’s 2% target in April in what is seen as a blip after much of the base effects of steep mobile phone charge discounts launched a year earlier and expanded later have waned, data from the Ministry of Internal Affairs and Communications released Friday showed.
The Bank of Japan has made it clear that it will maintain its super-low interest rate targets and flexible but large asset purchases to support economic recovery and guide inflation to stable 2%. In its quarterly Outlook Report released last week, the BOJ board projected inflation will average just under 2% temporarily in fiscal 2022 before slipping back to around 1% in the next fiscal year as the impact of surging commodities prices fades out.
Prices for both fresh and processed food, ranging from vegetables, fruits and fish to takeout sushi and hamburgers, continued pushing consumer inflation higher as tight supplies have been aggravated by the Ukraine war amid solid reopening demand.
Costs for utilities and fuels remain elevated but the pace of their increase from a year earlier was either unchanged or eased slightly from March, leading to a slightly smaller contribution of the overall energy price to the CPI in April. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards jumped 1.9% in April, coming in firmer than the median economist forecast of a 1.8% rise and marking the eighth straight year-on-year rise after rising 0.8% in March, 0.5% in February and 0.2% in January. It was the largest gain in just over seven years since March 2015, when the index rose 2.2% at the end of a 12-month cycle of being boosted by a sales tax hike to 8% from 5% in April 2014 (the sales tax is currently at 10% after another rise in 2019).
* The core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – rose 0.8% for the first year-on-year rise in 13 months after sliding 0.4% the previous month. This measure does not receive support from higher energy prices but it has been drifting higher in the face of markups in other items.
* The total CPI soared 2.5% on year in April, marking the eighth straight year-on-year gain after rising 1.3% in March. It was the fastest rise in about seven years since October 2014, when the index also gained 2.5%. Fresh food prices, a volatile factor, surged 15.6% on year, pushing up the overall index by 0.57 percentage point, following a 13.4% increase with a positive 0.49-point contribution the previous month.
* Energy prices rose 24.6% on year in April, pushing up the total index by 1.13 percentage points, after rising 26.1% (+1.16 points) the previous month. The pace of increase decelerated for the first time during the current year-on-year rise period that began in July 2021 after nearly two years of decline. The pace of increase in gasoline prices slowed further to +14.3% y/y (+0.08 percentage point contribution) from +17.7% (+0.10 point) in March. Electricity charges took a breather after months of sharp gains, up 25.8% (+0.65 point contribution) after +26.7% (+0.65 point) the previous month. City gas prices rose 27.6% (+0.39 point), also easing from +29.5% (+0.40 point).
* Food excluding perishables gained 2.3% (+0.50 point contribution) in April after rising 1.6% (+0.33 point) in March. The pace of increase continued to accelerate as more companies are trying to pass surging producer costs onto consumers.
* Amid lingering supply bottlenecks, the prices for household durable goods (refrigerators, etc.) posted the first year-on-year rise in six months, rising 5.5% and pushing up the CPI by 0.06 percentage point. It followed a 1.1% dip (-0.01 point) in March and a 4.1% slump (-0.05 point) in February. Initial strong demand for electric appliances and furniture arising from the stay-at-home lifestyle has petered out. Durable goods began five months of decline in November 2021 after rising in the previous 13 months.
* Accommodations costs rose 6.1% on the year (+0.07 point contribution) in April after rising 5.6% (+0.06 point) in March and climbing 6.0% (+0.07 point) in February. The pace slowed sharply to 0.6% (+0.01 point) in January from +44.0% (+0.35 point) in December and +57.6% (+0.42 point) in November. The government suspended its controversial ‘Go To Travel’ campaign in late December 2020 after seeing a spike in coronavirus cases and has been cautious about resuming it. The program was launched in July 2020 to subsidize hefty discounts on hotel fees and domestic transportation costs.
* Downward pressure from lower mobile communications fees eased to a 22.5% fall on the year in April, with a negative 0.29 point contribution to the total CPI, after plunging 52.7% and pushing down the index by 1.08 percentage points in March.