–Total CPI +3.5%, Narrow CPI (Ex-Fresh Food, Energy) +2.2% for 3-Deacde Highs
By Max Sato
The sharp depreciation of the yen is adding to already high import costs but the Bank of Japan would not tighten monetary policy just to shore up the yen’s value.
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. The BOJ board is expected to maintain its overall easing stance at its two-day meeting ending later today.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards jumped 3.4% in September, above the median economist forecast of a 3.2% rise. It is the 14th straight year-on-year rise after rising 2.8% in September, 2.6% in August, 2.3% in July, 2.1% in June, 1.9% in May and April and posting modest gains of 0.8% in March and 0.5% in February.
* The prices for both fresh and processed food, ranging from fish, vegetables, bread, chocolate, and cooking oil to imported meat, takeout sushi, and hamburgers at restaurants, continued pushing consumer inflation higher. High materials and shipping costs are keeping the prices for furniture over 30% above last year’s levels while prices for air conditioners were up 10% on high costs of copper and aluminum. The prices for washing machines also jumped as new models were introduced in September and stayed high in October.
* Utilities charges, close to 30% above year-earlier levels on high oil and gas prices, remain elevated, although electricity charges have hit the upper limits set by the government. The pace of year-on-year increase in gasoline prices has now slowed to just 2% as the government has been trying to cap retail gasoline price markups by providing subsidies to refineries.
* The core CPI’s annual rate is now the fastest in four decades, since the 3.4% rise in June 1982, excluding the direct impact of the sales tax hikes in 2014 and 1997 and the introduction of the tax in April 1989. Even during the 12-month period of being boosted by a sharp sales tax hike to 8% from 5% in April 2014, the core CPI peaked at a 2.8% rise. The sales tax is currently at 10% after another rise in 2019.
* The core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – rose to a 30-year high of 2.2% on the year in October for the seventh straight rise, also above the median forecast of a 2.0% rise. It followed increases of 1.7% in September. April’s 0.8% gain was the first year-on-year rise in 13 months. This measure does not receive support from higher energy prices but it has been on an uptrend in the face of markups in other items. Excluding the direct impact of the sales tax increases in 2014 and in 1997, the 2.2% gain is the highest in since the 2.2% rise in November 1992.
* The total CPI soared 3.5% on year in October, marking the 14th straight year-on-year gain, just above the median forecast of a 3.4% jump. It followed increases of 2.8% in September and 2.9% in August. Previously, the overall index gained 2.5% in July, 2.3% in June and 2.4% in both May and April. The 3.5% increase is the largest in about 31 years, since the 3.6% gain in November 1991, with or without the direct impact of the sales tax hikes of 2014 and 1997.
* Fresh food prices, a volatile factor, continued rising, up 7.0% on year in October, pushing up the overall index by just 0.28 percentage point, after a 2.6% rise and a 0.10-point contribution the previous month.
* Energy prices rose 24.2% on year in October, pushing up the total index by 1.20 percentage points, similar to a 24.2% rise (+1.17 points) in September, when the pace slowed from 25.6% (+1.22 points) in August. In March, the pace of increase in energy prices had decelerated for the first time during the current year-on-year rise period that began in July 2021.
* In the energy category, the pace of increase in gasoline prices was just 2.0% on year (a positive 0.01-piont contribution) in October, down from 5.8% (0.03 point) in September. Electricity charges gained 26.9% (+0.74 point), easing further from
27.9% (+0.75 point) in September and 29.0% (+0.77 point) in August. City gas prices rose 29.3% (+0.44 point), up from 25.8% (+0.38 point) in September and 28.5% (+0.41 point) in August.
* Food excluding perishables gained 5.9% (+1.27 points) in October, accelerating further from 4.5% (+0.96 point) in September and 3.8% (+0.82 point) in August.
* The prices for household durable goods rose 8.7% on year and pushed up the CPI by 0.10 percentage point in October amid easing but lingering supply bottlenecks, after surging 9.5% (0.11 point) in September. The prices of durable goods posted 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, after a 1.1% dip (-0.01 point) in March.
* Accommodations costs fell 9.5% with a negative 0.11-point contribution in October after increases of 6.6% (+0.08 point) in September and 2.9% (+0.04 point) in August and 0.2% (zero point) in July. The government is now subsidizing domestic travel under a new nationwide program after temporarily providing 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 downward pressure from sharp discounts on mobile communications fees that began in April 2021 has completely waned now. The prices for this service rose 1.8% on year (+0.02 point contribution) in October after posting a 14.4% drop (a negative 0.17-point contribution) in September and a 52.7% plunge (-1.08 points) in March.