–Processed Food Now Largest Inflation Factor as Energy’s Contribution Shrinks
–Core CPI (Ex-Fresh Food) Y/Y Rise Highest Since +3.6% in February 1982 With or Without Sales Tax Hike Impact
–Core-Core CPI (Ex-Fresh Food, Energy) +2.5% Y/Y, 30-Year High Excluding Impact of 2014, 1997 Sales Tax Hikes
–Total CPI Jumps 3.7% Y/Y, 31-Year High Excluding Effects of Sales Tax Hikes
By Max Sato
(MaceNews) – Consumer inflation in Japan soared in October as many more firms, hit by high producer and import costs amid the weak yen, jacked up retail prices for food, beverages, electronic appliances and tobacco, boosting the core CPI annual rate to a more than 40-year high of 3.6%, data from the Ministry of Internal Affairs and Communication released Friday showed.
Rising processed food prices are now the largest contributor to inflation as the pace of year-on-year increase in energy costs has been decelerating. The government is trying to cap retail gasoline price hikes with subsidies to refineries, and plans to provide financial support to lower utility charges for all households.
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.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.6% from a year earlier in October, coming in higher than the median economist forecast for a 3.5% rise. It is the 14th straight year-over-year increase after rising 3.0% in September, 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 BOJ’s quarterly Outlook Report released last month showed the median forecast by the nine-member board for the core CPI annual rate was revised up to 2.9% for fiscal 2022 ending next March from 2.3% projected in July. The average of year-over-year gains in the core reading for the first seven months of fiscal 2022 is 2.6%, compared to a 0.1% rise in the full year of fiscal 2021.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – accelerated to 2.5% in October from 1.8% in September, marking the seventh straight increase and is now at a 30-year high. It was also above the median economist forecast for a 2.4% rise. The 2.5% jump 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 2.7% rise in June 1992 (a more than 30-year high). 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 October that the core-core CPI would rise 1.8% in fiscal 2022 and a further 1.6% in each of fiscal 2023 and 2024, all revised up from its previous projections in July.
* The total CPI soared 3.7% on year in October, marking the 14th consecutive year-on-year increase after increases of 3.0% in September and August, 2.6% in July, 2.4% in June, 2.5% in May and April and 1.2% in March. It is in line with the consensus forecast of a 3.7% increase. Fresh food prices, a volatile factor, rose 8.1% on year and pushed up the overall index by just 0.33 percentage point after rising 1.9% (up 0.08 point) the previous month.
* The 3.7% increase in total CPI was the largest since the 3.7% rise in May 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 4.0% surge in January 1991 (more than 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 decelerated to 15.2% in October after being unchanged at 16.9% in September and their contribution shrank to 1.18 percentage points from 1.28 points. The pace has slowed from a recent peak of 20.8% (+1.46 points) in March. The government has been trying to cap retail gasoline prices by providing subsidies to refineries, resulting in a smaller contribution of overall energy prices to the CPI.
* The increase in gasoline prices was much smaller at 2.9% (+0.06 point contribution) in October, slowing from 7.0% (+0.15 point) in September and following 15 months of double-digit percentage gains through June, when they rose 12.2% (+0.25 point).
* Electricity bills rose 20.9% on the year (+0.74 point) in October, slowing from
21.5% (+0.75 point) in September. The year-on-year increase in city gas prices accelerated slightly to 26.8% (+0.26 point) from 25.5% (+0.24 point) the previous month. The government plans to provide financial support to all households early next year to help cushion surging utility costs.
* The prices for food excluding perishables posted the 16th straight year-over-year increase, accelerating further to 5.9% (+1.33 points) in October from 4.6% (+1.03 points) in September, surpassing the price-boosting effect of energy (+1.18 points). It was the largest increase since a 6.1% rise in March 1981. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), bread, meat (domestic pork) and chocolate. Many food and beverage producers raised retail prices on Oct. 1 at the start of the second half of fiscal 2022.
* Mobile communications fees posted the first year-on-year gain in 19 months, up 1.8% in October with a positive 0.02-point contribution, after falling 14.4% in September with a negative contribution of 0.22 point. The pace of decrease had decelerated in recent months from a 53.6% plunge (-1.48 points) in February. 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, when the charges fell 22.5% (-0.38 points).
* The prices for household durable goods (air conditioners, etc.) marked the seventh consecutive gain from year-earlier levels. The pace of increase continued accelerating to 11.8% in October (+0.16 point) from 11.3% (+0.15 point) in September and 6.3% (+0.09 point) in August.
* Property insurance premiums rose 10.2% (+0.08 point contribution) in October after rising just 1.0% in September (+0.01 point).
* Accommodations charges marked the first year-on-year drop in 17 months, down 10.0% (-0.09 point) in October after rising 6.6% on the year (+0.06 point contribution) in September. The seventh wave of the pandemic in Japan had eased by early September but there are signs that an eighth wave is emerging, which could make some people more cautious about traveling.
* The CPI is come under slight downward pressure again from the prices for hotels and train fares as the government began subsidizing domestic travel under a new nationwide program in October. Its previous, controversial ‘Go To Travel’ campaign was suspended in late December 2020 amid a spike in coronavirus cases five months after it was launched.