–Total CPI Jumps 4.4% Y/Y, Highest in Over 41 Years With or Without Effects of 2014, 1997 Sales Tax Hikes
–Narrow CPI (Ex-Fresh Food, Energy) Also Surges 3.0%, More Than 30-Year High
By Max Sato
Looking ahead, consumer prices will receive some downward effects from the government’s new program to provide subsidies to consumer electricity and natural gas providers from January to September this year, which will be reflected in utility bills, and thus CPI data, in February onward.
The yen remains relatively weak compared to year-earlier levels, limiting Japan’s purchasing power and keeping the costs for importing materials and products high.
The Bank of Japan board is unlikely to revamp its yield curve control framework adopted in September 2016 at least until the second five-year term of Governor Haruhiko Kuroda, an advocate for a reflationary policy mix, ends on April 8. Prime Minister Fumio Kishida has been careful about discussing whether the government and the BOJ should review its 10-year-old policy coordination accord under the new governor.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards surged 4.3% in January, coming in higher than the median economist forecast of a 4.2% rise. It is the 17th straight year-on-year rise after rising 3.9% (revised down form a 4.0% rise) in December, 3.6% in November, 3.4% in October and 2.8% in September.
* The core CPI’s annual rate is at the fastest pace in more than 41 years, since the 4.3% rise in May 1981, with or without 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 3.0% on the year in January for the 10th straight rise. It was also just above the median forecast of a 2.9% rise. It followed increases of 2.7% in December, 2.4% in November, 2.2% in October and 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. With or without the direct impact of the sales tax increases in 2014 and in 1997, the 3.0% gain remains the highest in more than 30 years, since the 3.0% rise in April 1992.
* The total CPI soared 4.4% on year in January, marking the 17th straight year-on-year gain and coming in higher than the median forecast of a 4.2% rise (forecasts ranged from 4.0% to 4.3%). It followed increases of 3.9% (revised down from 4.0%) in December, 3.7% in November, 3.5% in October and 2.8% in September. The 4.4% increase is the largest in more than 41 years, since the 4.8% gain in June 1981.
* Fresh food prices, a volatile factor, continued rising, up 6.5% on year in January, pushing up the overall index by 0.27 percentage point, after a revised 4.4% rise and a 0.18-point contribution the previous month.
* The prices for both fresh and processed food, ranging from fish, bread, soft drinks, potato chips and cooking oil to imported beef and hamburgers at restaurants, continued pushing consumer inflation higher.
* Food excluding perishables rose 7.4% (+1.60 points contribution to the CPI) in January, little changed from a 7.5% gain (+1.60 points) in December and up from 6.7% (+1.44 points) in November and 5.9% (+1.27 points) in October. This category replaced energy as the largest contributor to the CPI increase in October (+1.27 points vs. +1.20 points) and the gap between the two has widened.
* Energy prices rose 26.0% on year in January, pushing up the total index by 1.35 percentage points, also little changed from a 26.0% rise (+1.33 points) in December and up from 24.4% rise (+1.23 points) in November. In March 2022, the pace of increase in energy prices decelerated for the first time during the current year-on-year rise period that began in July 2021.
* In the energy category, gasoline prices rose just 0.5% on the year (zero contribution to the CPI) in January after rebounding 1.8% (+0.01 point) in December and falling 0.8% (-0.01 point) in November for the first drop since the 5.2% fall recorded in February 2021 at the end of a 12-month period of year-on-year declines. Electricity charges gained 24.6% (+0.71 point), after rising 26.0% (+0.73 point) in December. City gas prices soared 39.7% (+0.63 point) after rising 36.9% (+0.58 point) the previous month.
* The prices for household durable goods rose 10.6% and pushed up the CPI by 0.12 point in January after rising 11.0% (+0.12 point) in December. Durable goods posted the first year-on-year rise in six months in April 2022, when they rose 5.5% and added 0.06 point to the total index.
* Accommodations costs dipped 2.8% from a year earlier with a negative 0.03-point contribution) in January after falling 18.8% (-0.22 point) in December, 20.0% (-0.23 point) in November and 10.0% (-0.12 point) in October. The government began subsidizing domestic travel under a new nationwide program in October. After a brief suspension during the yearend and New Year holidays, it resumed the scheme with smaller discounts.
* The prices of mobile phones rose 21.7% (+0.14 point) in January for the eighth consecutive month of year-on-year increase after rising 22.1% (+0.14 point) in December, 20.1% (+0.13 point) in November and 16.5% (+0.11 point) in October. The weak yen has boosted the costs for importing smartphones.