–High Energy Costs Remain Largest Contributor, Processed Food Catching Up
–Core CPI (Ex-Fresh Food) +3.0% Y/Y 31-Year High Excluding 2014, 1997 Sales Tax Hikes Impact
–Narrow CPI (Ex-Fresh Food, Energy) +1.8% Y/Y, Close to BOJ’s 2% Inflation Target
By Max Sato
(MaceNews) – Consumer inflation in Japan continued its relentless upward march in September, reflecting high costs for energy, processed food and electronic appliances, with the core reading creeping up to a 31-year high of 3%, excluding the direct impact of the sales tax hikes in 2014 and 1997, 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.
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. It is likely to lift its core CPI forecast of 2.4% for fiscal 2022 ending next March toward 3.0%, and raise its fiscal 2023 outlook slightly from 1.4%.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.0% from a year earlier in September, coming in line with the median economist forecast of a 3.0% rise. It is the 13th straight year-on-year increase after rising 2.8% in August, 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 1.8% on year in September from 1.6% in August, as expected, marking the sixth straight increase and staying at a nearly 29-year high. It follows 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 1.8% 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 1.8% rise in February 1993. This narrow measure is not receiving support from elevated energy prices 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 rose 3.0% on year in September, marking the 13th consecutive year-on-year increase, following increases of 3.0% in August, 2.6% in July, 2.4% in June, 2.5% in both May and April and 1.2% in March. It is higher than the consensus forecast of a 2.9% increase. Fresh food prices, a volatile factor, rose 1.9% on year and pushed up the overall index by just 0.08 percentage point after rising 8.1% (up 0.32 point) the previous month.
* August’s 3.0% increase in total CPI was 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 was unchanged at 16.9% in September and their contribution was +1.28 percentage points, little changed from 1.27 points in August. The pace had slowed 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 increase in gasoline prices was also little changed at 7.0% (+0.15 point contribution) in September, after shrinking to 6.9% (+0.15 point) in August from 8.3% (+0.18 point) in July and following 15 months of double-digit percentage gains through June, when they rose 12.2% (+0.25 point).
* Leading high energy costs, electricity bills rose 21.5% on the year (+0.75 point) in September, with the pace of increase unchanged from 21.5% (+0.74 point) in August, after accelerating from increases of 19.6% (+0.68 point) in July, 18.0% (+0.62 point) in June. The year-on-year increase in city gas prices eased slightly to
25.5% (+0.24 point) from 26.4% (+0.24 point) the previous month. The government plans to provide financial support to all households to help cushion surging utility costs.
* The prices for food excluding perishables posted the 15th straight year-over-year increase, accelerating further to 4.6% (+1.03 points) in September from 4.1% (0.92 point) in August, 3.7% (+0.83 point) in July and 3.2% (+0.72 point) in June. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), bread, chocolate and cooking oil.
* Mobile communications fees fell 14.4% on the year in September (a negative contribution of 0.22 percentage point), little changed from a 14.0% drop (-0.22 point) in August, when it shrank from a 21.7% fall 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.
* The prices for household durable goods (air conditioners, etc.) marked the sixth consecutive gain from year-earlier levels. The pace of increase picked up to 11.3% (+0.15 point) in September from 6.3% (+0.09 point) in August, 4.9% in July (+0.07 point) and 7.5% (+0.10 point) in June.
* The year-on-year increase in accommodations charges accelerated to 6.6% (+0.06 point contribution) in September from 2.9% (+0.03 point) in August, 0.2% (zero contribution) in July and 3.6% (+0.03 point) in June. The seventh wave of the pandemic in Japan has eased after the number new Covid cases surged to record highs from late July to late August in the absence of strict public health rules. The rate of increase in hotel charges has been modest as the government temporarily provided fiscal support to prefectures that offered hotel discounts to residents. 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 as the government is subsidizing domestic travel under a new nationwide program. Its controversial ‘Go To Travel’ campaign was suspended in late December 2020 amid a spike in coronavirus cases five months after it was launched.