–Core CPI +2.2% Y/Y Remains Largest in Over 13 Years If 2014 Sales Tax Hike Impact Excluded
–BOJ’s Kuroda Says No Rate Hike in Cards, Japan Economy Still Needs Support
–BOJ Board Revises Up CPI Forecasts But Stable 2% Inflation Still Far Ahead
By Max Sato
(MaceNews) – Consumer inflation in Japan ticked up above 2% in June as supply bottlenecks and global demand continued pushing up the costs for fuels, food and appliances despite concerns over a US growth slowdown, but the pace of increase in utilities and gasoline slowed, data from the Ministry of Internal Affairs and Communication released Friday showed.
In its quarterly update released Thursday, the Bank of Japan board projected inflation will average 2.4% in fiscal 2022 ending next March, revised up from 1.9% forecast in April, before slipping back to 1.4% (revised up from 1.1%) in fiscal 2023 as the impact of surging commodities prices wanes and wage growth is expected to remain slow.
At its latest two-day policy meeting that ended on Thursday, the BOJ board decided to maintain its super-low interest rate targets along the yield curve and large asset purchases, as expected, to help the economy fully recovery from the pandemic-caused slump and anchor inflation around its stable 2% target.
At a post-meeting news conference, BOJ Governor Haruhiko Kuroda made it clear once again that the bank’s policymakers are “not considering raising interest rates at all” given their latest outlook that domestic inflation is unlikely to be anchored around its 2% target in the next few years.
The key points from CPI data:
* The 2.2% rise remains the largest increase since the 2.2% rise in March 2015, but excluding the direct impact of the April 2014 sales tax hike on the March 2015 CPI data (about 2 percentage points), it is the sharpest gain since the 2.3% rise seen in September 2008.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – rose 1.0% on year in May after rising 0.8% in both May and April and falling 0.7% in March. April’s increase was the first in 21 months since the 0.4% rise in 2020. June’s 1.0% rise is the largest gain since February 2016, when the index also rose 1.0%. This narrow measure is not receiving support from higher energy markets but is now being propped up by markups in various items.
* As a reference forecast, the BOJ board projected the core-core CPI would rise 1.3% in fiscal 2022, 1.4% in fiscal 2023, both revised up from its previous projection in April, while leaving its fiscal 2014 forecast unchanged at a 1.5% increase.
* The total CPI rose 2.4% on year in June, marking the 10th consecutive year-on-year increase after rising 2.5% in both May and April and 1.2% in March. It was /in line with the median economist forecast of a 2.4% increase. The 0.2% gain in September 2021 was the first increase in 13 months. Fresh food prices, a volatile factor, rose 6.5% on year and pushed up the overall index by 0.26 percentage point after surging 12.3% (up 0.47 point) the previous month.
* The recent 2.5% increase in total CPI is the largest since the 2.9% rise in October 2014, but excluding the direct impact of the sales tax hikes in April 2014 (from 5% to 8%) and April 1997 (from 3% to 5%), it was the fastest pace of inflation since the 2.7% surge in December 1991, just after the burst of the asset bubble. Later the sales tax was raised to the current 10% from 8% in October 2019 but its impact on the CPI was smaller than in the past.
* Among key components of the CPI basket of goods and services, the pace of year-on-year increase in energy prices continued decelerating to 16.5% (+1.23 percentage point contribution) in June from 17.1% (+1.26 points) in May after hitting a recent peak of 20.8% (+1.46 points) in March. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries, resulting in a smaller contribution of overall energy prices to the CPI.
* In the energy category, the upward pressure from electricity bills eased for the third straight month, but still up a sharp 18.0% on year (+0.62 point) in June following increases of 18.6% on year (+0.63 point) in May and 21.0% (+0.69 point) in April. The increase in gasoline prices also decelerated further to 12.2% (+0.25 point) from 13.1% (+0.27 point) in May, 15.7% (+0.32 point) in April and 19.4% (+0.38 point) in March.
* The prices for food excluding perishables continued accelerating, up 3.2% (+0.72 point) in June, following 2.7% (+0.60 point) in May, +2.6% (+0.58 point) in April and +2.0% (+0.44 point) in March.
* Mobile communications fees fell 22.5% on year in June (a negative contribution of 0.37 percentage point) after slipping 22.5% (minus 0.38 percentage point) in May. The decrease was much smaller than the 52.7% fall (-1.42 points) in March because much of the downward pressure from low-cost monthly data plans introduced in April 2021 by major mobile phone carriers and expanded later had faded by April this year.
* Household durable goods prices continued providing a solid upward contribution to the CPI in June after posting the first year-on-year rise in six months in April. The prices for durable goods, such as air conditioners, rose 7.5% from a year earlier, pushing up the total CPI by 0.10 percentage point. It followed increases of 7.4% (+0.10 point) in May and 5.0% (+0.07 point) in April and a 0.4% (-0.01 point) drop in March.
* An unprecedented early end to the rainy season, by nearly a month, brough in a heat wave in late June, pushing up temperatures to record highs for the month in many cities and boosting demand for air conditioners and electric fans.
* The year-on-year increase in accommodations costs slowed to 3.6% (+0.03 contribution) in June from 5.2% (+0.05 point) in May and 6.1% (+0.06 point) in April. Double-digit percentage gains seen in the second half of calendar 2021 including the 44.0% rise in December (+2.29 point) were in reaction to sharp drops seen a year before.
* The CPI could come under some downward pressure again from the prices for hotels and train fares if the government resumes fiscal support to the tourism industry, but Prime Minister Fumio Kishida has turned cautious in the face of a renewed spike in new Covid cases. The government was considering revamping its controversial ‘Go To Travel’ campaign with subsidies for domestic traveling. The program was suspended in late December 2020 amid a spike in coronavirus cases five months after it was launched.