–May Tokyo CPI Annual Rate Highest in Nearly 3 Decades Excluding 2014, 1997 Sales Tax Hike Impact
–Energy, Food Prices Lead Inflation; BOJ Sees Impact of Commodity Market Spike Fading in FY23
–Gasoline Price Markups Smaller on Govt Subsidies; Utilities Costs High but Also Easing
By Max Sato
(MaceNews) – The year-on-year rise in consumer prices in Tokyo, the leading indicator of the national average, remained high around the Bank of Japan’s 2% inflation target in May after surging in April, but the pace was slower than expected as energy costs, the largest contributor to inflation, have lost some steam, data from the Ministry of Internal Affairs and Communications released Friday showed.
The prices for both fresh and processed food, ranging from vegetables, fruits and fish to takeout sushi, eat-in hamburgers and rice crackers, continued pushing up consumer inflation higher as tight supplies have been aggravated by Covid lockdowns in Chinese cities and the protracted Ukraine war.
The costs for utilities and fuels remain elevated but the pace of their increase from a year earlier continued easing slightly from the previous month, leading to a smaller contribution of the overall energy price to the CPI in May. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries.
BOJ policymakers regard the recent spike in the CPI annual rate as temporary after much of the base effects of steep mobile phone charge discounts launched a year earlier had waned by April.
Last month, the Bank of Japan board decided to 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 for April, the 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.
The key points from the Tokyo CPI data:
- The core consumer price index (excluding fresh food) in the capital’s 23 wards rose 1.9% in May, coming in softer than the median economist forecast of a 2.0% rise while marking the ninth straight year-on-year rise after jumping 1.9% in April and recording modest increases of 0.8% in March and 0.5% in February.
- The pace of core CPI’s annual rate remains the fastest 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). Excluding the direct impact of the sales tax increases in 2014 and 1997 (the latter to 5% from 3%), it is the highest in more than 29 years, since the 2.1% rise in November 1992.
- The core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – rose 0.9% after marking the first year-on-year rise in 13 months in April with a 0.8% rise and falling 0.4% in March. 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 rose 2.4% on year in May, marking the ninth straight year-on-year gain after soaring 2.4% (revised down from 2.5%) in April and rising 1.3% in March. The 2.4% rise is the largest in over seven years since October 2014, when the index gained 2.5%. Excluding the direct impact of the sales tax hikes of 2014 and 1997, it is the highest inflation rate in nearly three decades, since June 1992, when the index rose 2.5%. Fresh food prices, a volatile factor, continued rising at a fast pace, up 14.6% on year, pushing up the overall index by 0.54 percentage point, although the pace was slightly slower than a downwardly revised 14.9% increase and a positive 0.55-point contribution the previous month.
- Energy prices rose 22.3% on year in May, pushing up the total index by 1.05 percentage points, after rising 24.6% in April (+1.13 points) and 26.1% (+1.16 points) in March, when 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 decelerated further to +11.6% y/y (+0.07 percentage point contribution) in May from 14.3% (+0.08 point) in April and +17.7% (+0.10 point) in March. Electricity charges posted a slower rise after months of sharp gains, up 23.0% (+0.60 point), following increases of 25.8% (+0.65 point) in April and +26.7% (+0.65 point) in March. City gas prices rose 25.8% (+0.37 points), also easing from +27.6% (+0.39 points) in April and +29.5% (+0.40 point) in March.
- Food excluding perishables gained 2.5% (+0.54 point contribution) in May after rising 2.3% (+0.50 point) in April. The pace of increase continued to accelerate as more companies are trying to pass surging producer costs, up 10.0% on year in April, onto consumers and global supply conditions remain tight.
- Amid lingering supply bottlenecks, the prices for household durable goods (refrigerators, etc.) rose 7.0% on year and pushed up the CPI by 0.08 percentage point after posting the first year-on-year rise in six months in April, when they rose 5.5% and added 0.06 point to the total index. 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 waned but retailers report low inventories and delayed shipments for various products. Overall durable goods began five months of decline in November 2021 after rising in the previous 13 months.
- Accommodations costs rose 5.2% on the year (+0.06 point contribution) in May after rising 6.1% (+0.07 point) in April, 5.6% (+0.06 point) in March and 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. 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.
- The downward pressure from sharp discounts on mobile communications fees that began in April 2021 has eased. The prices for this service fell 22.5% on the year (minus 0.29 percentage point contribution) in May, the same as in April, but smaller than the 52.7% plunge (minus 1.08 points) in March.
Contact this reporter: max@macenews.com
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