–Utilities Lead Rising Energy Costs; Gasoline Price Rise Slows on Subsidies, Softer Market
–Core CPI +2.8% Y/Y Nearly 31-Year High Excluding 2014, 1997 Sales Tax Hikes Impact
–Total CPI +3.0% Y/Y Also Nearly 31-Year High, Excluding Booster Effects of Sales Tax Hikes
–Even Narrow CPI (Ex-Fresh Food, Energy) Up 1.6% Y/Y, More than 29-Year High
By Max Sato
(MaceNews) – Consumer inflation in Japan surged at a faster pace than expected in August, reflecting elevated producer costs for food, energy and electronic appliances, with both the core and total readings hitting nearly 31-year highs excluding the direct impact of the sales tax hikes in 2014 and 1997, data from the Ministry of Internal Affairs and Communication released Tuesday showed.
Many households will see no break in markups in the coming months. All 10 major power companies in Japan have announced sharp hikes in charges in light of rising costs for natural gas and coal. Food and beverage makers also plan to jack up retail prices in October.
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.
In its quarterly Outlook Report due Oct. 28 after the bank’s two-day policy meeting, the board will update its growth and inflation projections. In July, it
projected the core CPI would average 2.4% in fiscal 2022 ending next March before slipping back to 1.4% 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 national average core consumer price index (excluding fresh food) rose 2.8% from a year earlier in August, coming in higher than the median economist forecast for a 2.7% rise. It was the 12th straight year-on-year increase after rising 2.4% in July, 2.2% in June, 2.1% in both May and April and 0.8% in March. The 0.1% rise in September 2021 was the first increase in 18 months.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – accelerated to an over 29-year high of 1.6% on year in August for the fifth straight increase, coming in firmer than the median economist forecast of a 1.5% rise. It followed increases of 1.2% in July, 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 1.6% rise is the largest since a 2.5% gain in March 2015. Excluding the direct impact of the sales tax hikes in 2014 and 1997, it is the biggest increase since a 1.7% rise in March 1993. 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 soared 3.0% on year in August, marking the 12th consecutive year-on-year increase after rising 2.6% in July, 2.4% in June, 2.5% in both May and April and 1.2% in March. It is above the consensus forecast of a 2.9% increase. Fresh food prices, a volatile factor, rose 8.1% on year and pushed up the overall index by 0.32 percentage point after rising 8.3% (up 0.32 point) the previous month.
* The 3.0% increase in total CPI is the largest since the 3.2% rise in September 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 3.1% surge in November 1991 (nearly a 31-year high), just after the burst of the asset bubble. In October 2019, the sales tax was raised further to the current 10% from 8% 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 picked up slightly to 16.9% (+1.27 percentage point contribution) in August after sliding to 16.2% (+1.22 points) 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 6.9% (+0.15 point) in August from 8.3% (+0.18 point) in July after 15 months of double-digit percentage gains through June, when they rose 12.2% (+0.25 point) but slowed from increases of 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 for the second straight month in August, rising 21.5% on the year (+0.74 point) in August, following increases of 19.6% (+0.68 point) in July, 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 also accelerated to 26.4% (+0.24 point) from 24.3% (+0.23 point) in July.
* Prices for food excluding perishables posted the 14th straight year-over-year increase, accelerating further to 4.1% (0.92 point) in August from 3.7% (+0.83 point) in July, 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. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), snacks (chocolate) and cooking oil.
* Mobile communications fees fell 14.0% on the year in August (a negative contribution of 0.22 percentage point), with the pace of decline decelerating from
a 21.7% drop in July (-0.36 point). 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.
* Prices for household durable goods (air conditioners, refrigerators, etc.) marked their fifth consecutive gain from year-earlier levels amid solid demand and lingering supply constraints. The pace of increase picked up again to 6.3% (+0.09 point) in August after slowing to 4.9% in July (+0.07 point) from 7.5% (+0.10 point) in June, 7.4% (+0.10 point) in May and 5.0% (+0.07 point) in April.
* The year-on-year increase in accommodations charges also accelerated in August, up 2.9% (+0.03 point), after slowing to just 0.2% (zero 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. Despite reopening demand for travel, the rate of increase in hotel charges has been modest as the government is providing fiscal support to prefectures that offer hotel discounts to residents in a smaller scale compared to its 2020 program. Double-digit percentage gains seen in the second half of calendar 2021 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 travel. The program was suspended in late December 2020 amid a spike in coronavirus cases five months after it was launched.