–Core CPI +2.4% Y/Y Largest in 14 Years Excluding 2014 Sales Tax Hike Impact
–Total CPI +2.6% Y/Y Remains Fastest in Over 30 Years, Excluding Direct Impact of 2014, 1997 Sales Tax Hikes
–Gasoline Price Rise Slower on Govt Subsidies, Easing Crude Oil Market
By Max Sato
(MaceNews) – Consumer inflation in Japan continued moving up above 2% in July as suppliers of food and energy are trying to reflect elevated producer costs in sales prices, although there are some signs of easing in supply constraints and of slower global demand amid credit tightening by major central banks, data from the Ministry of Internal Affairs and Communication released Friday showed.
Bank of Japan Governor Haruhiko Kuroda has repeatedly said the bank would not consider raising interest rates while inflation is not accompanied by solid wage growth (real wages are falling) and supply continues to exceed demand in the Japanese economy. The BOJ board has projected inflation is unlikely to be anchored around its 2% target at least for the next few years.
At its latest policy meeting on July 20-21, 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 recover from the pandemic-caused slump and anchor inflation around its 2% target.
In its quarterly update released last month, the 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 an earlier surge in commodities prices wanes and wage growth is expected to remain slow.
The key points from CPI data:
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – rose 1.2% on year in July for the fourth straight increase, coming in firmer than the median economist forecast of a 1.1% rise. It followed increases of 1.0% in June, 0.8% in both May and April (the first rise in 21 months) and a 0.7% drop in March. The 1.2% rise is the largest since December 2015, when the index also rose 1.2%. This narrow measure is not receiving support from higher energy markets but has been gradually pushed up by markups in various items.
* As a reference forecast, the BOJ board projected in July that the core-core CPI would rise 1.3% in fiscal 2022 and a further 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 climbed 2.6% on year in July, marking the 11th consecutive year-on-year increase after rising 2.4% in June, 2.5% in both May and April and 1.2% in March. It was in line with the consensus forecast of a 2.6% increase. Fresh food prices, a volatile factor, rose 8.3% on year and pushed up the overall index by 0.32 percentage point after rising 6.5% (up 0.26 point) the previous month.
* The 2.6% increase in total CPI remains the largest since the 2.9% rise in October 2014. 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. Goods prices in the total CPI rose 5.4% on the year while services prices remained sluggish, down 0.2%.
* Among key components of the CPI basket of goods and services, the pace of year-on-year increase in energy prices continued decelerating to 16.2% (+1.22 percentage point contribution) in July from 16.5% (+1.23 points) in June, 17.1% (+1.26 points) in May and 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. The crude oil market has also been easing amid signs of slower global demand.
* The increase in gasoline prices decelerated further to 8.3% (+0.18 point contribution) in July after 15 months of double-digit percentage gains including 12.2% (+0.25 point) in June, 13.1% (+0.27 point) in May, 15.7% (+0.32 point) in April and 19.4% (+0.38 point) in March.
* Also in the energy category, the upward pressure from electricity bills picked up again in July, rising 19.6% on the year (+0.68 point) in July following increases of 18.0% (+0.62 point) in June, 18.6% (+0.63 point) in May and 21.0% (+0.69 point) in April. The year-on-year increase in city gas prices accelerated to 24.3% (+0.23 point) from 21.9% (+0.20 point) in June.
* The prices for food excluding perishables posted the 13th straight year-over-year increase, accelerating further to 3.7% (+0.83 point) in July from 3.2% (+0.72 point) in June, 2.7% (+0.60 point) in May, +2.6% (+0.58 point) in April and +2.0% (+0.44 point) in March.
* Mobile phone prices jumped 14.7% form a year earlier in July, adding 0.13 percentage point to the CPI, up sharply from a 2.3% gain (+0.02 point) in June. It was the second consecutive year-on-year rise.
* By contrast, mobile communications fees fell 21.7% on the year in July (a negative contribution of 0.36 percentage point) after falling 22.5% (-0.37 point) in June. The decrease was much smaller than the 52.7% plunge (-1.42 points) in March. 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.
* The prices for household durable goods (air conditioners, refrigerators, etc.) marked the fourth consecutive gain from year-earlier levels, but the pace of increase slowed to 4.9% from a year earlier in July (+0.07 point contribution) from 7.5% (+0.10 point) in June, 7.4% (+0.10 point) in May and 5.0% (+0.07 point) in April.
* Despite pent-up demand for travel, the year-on-year increase in accommodations charges slowed further to just 0.2% (zero percentage point contribution) in July from 3.6% (+0.03 point) in June, 5.2% (+0.05 point) in May and 6.1% (+0.06 point) in April as the government provided fiscal support to prefectures that offer hotel discounts to residents. 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 its controversial ‘Go To Travel’ campaign with wide-ranging subsidies for domestic traveling. The program was suspended in late December 2020 amid a spike in coronavirus cases five months after it was launched.