–Core CPI (Ex-Fresh Food) Y/Y Rise Highest Since +4.2% in September 1981
–Core-Core CPI (Ex-Fresh Food, Energy) +3.2% Y/Y, Highest Since +3.2% in April 1982
–Total CPI +4.3% Y/Y, 41-Year High; Largest Since +4.3% in December 1981
By Max Sato
(MaceNews) – Consumer inflation in Japan picked up its pace further in January, with the core measure setting a fresh 41-year high of 4.2%, as firms continued raising prices for food and beverages to reflect a spike in last year’s producer costs and as utility bills remained on an uptrend, data from the Ministry of Internal Affairs and Communication released Friday showed.
The largest contribution to the accelerated annual rate of 4.2%, compared to December’s 4.0%, came from a smaller drop in hotel fees. The downward pressure from the government’s domestic travel discount program, which took effect last October, eased in January, when it was resumed on a smaller scale after a brief suspension during the yearend and New Year holidays.
The yen has regained some ground against the dollar to around Y130 in January from Y147 in October but remains relatively weak compared to its year-earlier levels of around Y115, eroding Japan’s purchasing power and keeping the costs for importing materials and products high.
The current spike in consumer inflation has been caused by elevated energy and commodities costs and supply constraints. Contrary to upward stickiness of service costs in North America, service prices in Japan are structurally subdued, up just 1.2% on year in January, compared to a 7.2% surge in goods prices. Many firms have been cautious about raising wages, although some big firms are giving higher salaries ahead of their usual annual change in April or increasing benefits so that their employees can tide over.
Bank of Japan Governor Haruhiko Kuroda, whose second five-year term ends on April 8, has said repeatedly that the bank needs to maintain its accommodative monetary policy stance until inflation reaches stable 2% with solid wage growth and a positive output gap.
Economics professor Kazuo Ueda, who served on the bank’s nine-member policy board from 1998 until 2005, has been nominated by the government to succeed Kuroda and is likely to win parliamentary approval due to the ruling coalition’s majority in both chambers. Ueda told reporters recently that it is necessary to continue monetary easing under the current economic conditions.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 4.2% from a year earlier in January, coming in slightly below the median economist forecast for a 4.3% rise. It is the 17th straight year-over-year increase after rising 4.0% in December, 3.7% in November and 3.6% in October. The 0.1% rise in September 2021 was the first increase in 18 months.
* The 4.2% rise is a 41-year high, the largest increase since the 4.2% gain in September 1981, with or without the direct impact of the sales tax hikes in 2014 (from 5% to 8%) and in 1997 (from 3% to 5%) and the introduction of the sales tax in 1989. The tax was further raised to 10% in 2019 but had only a limited impact on prices.
* 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 3.0% for fiscal 2022 ending in March from 2.9% projected in October. The average of year-over-year gains in the core reading for the first 10 months of fiscal 2022 is 3.0%, compared to a 0.1% rise in the full year of fiscal 2021.
* The board projected that the increase in the core CPI would slow to 1.6% in fiscal 2023 as the base effects of the current spike in energy and commodities prices fade, unchanged from its October forecast. For fiscal 2024, the board expects the core reading to rise 1.8%, slightly higher than its 1.6% projection made three months ago, noting the impact of government subsidies to cap retail gasoline and utility prices will wane.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — accelerated to 3.2% in January from 3.0% in December, 2.8% in November and 2.5% in October, marking the 10th straight increase. It was in line with the median economist forecast for a 3.2% rise. The 3.2% rise is the largest since the 3.2% increase in March 1990, which was caused by the April 1989 introduction of the sales tax. Excluding the direct impact of the tax hike, the index is now an over 40-year high since +3.2% seen in April 1982. This narrow measure is not receiving upward pressures from elevated energy prices but has been gradually pushed up by markups in various items.
* As a reference forecast, the BOJ board projected last month that the core-core CPI would rise 2.1% in fiscal 2022 (so far up 1.9%), revised up from its October forecast of 1.8%, and that the increase would slow to 1.8% (revised up from 1.6%) in fiscal 2023 and 1.6% (unrevised) in fiscal 2024.
* The total CPI surged 4.3% on year in January, coming in just below the consensus forecast of a 4.4% increase and marking the 17th consecutive year-over-year increase following increases of 4.0% in December, 3.8% in November and 3.7% in October. Most of the 0.3 percentage point acceleration from December to January came from smaller year-on-year drops in hotel charges and auto insurance premiums. Fresh food prices, a volatile factor, rose 7.2% on year and pushed up the overall index by 0.30 percentage point after rising 4.9% (up 0.19 point) the previous month. The 4.3% increase in total CPI is a 41-year high, the largest since the 4.3% rise in December 1981.
* Accommodations fees, which have a relatively small weight in the CPI basket of goods and services, dipped 3.0% on the year with a slight negative 0.03-point contribution in January after falling 18.8% (-0.18 point) in December and 20.0% (-0.19 point) in November. Hotel fees marked their first year-over-year drop in 17 months in October 2022, down 10.0% (-0.09 point), after rising 6.6% (+0.06 point) in September.
* Automobile insurance premiums also posted a smaller 0.8% drop in January (a negative 0.01-point contribution), compared to a 2.6% fall (-0.05 point) in December.
* Among key components of the CPI basket of goods and services, the pace of year-on-year increase in energy prices decelerated to 14.6% in January from 15.2% in December but was faster than 13.3% in November. Energy’s contribution fell to 1.17 percentage points from 1.21 points the previous month. The pace of increase has slowed from a recent peak of 20.8% (+1.46 points) in March 2022. 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 in recent months.
* Gasoline prices were nearly flat, up 0.4% on year, making a slightly positive 0.01 percentage point contribution to overall consumer prices, after rising 1.6% with a 0.04-point positive contribution and posting their first year-on-year drop in 21 months in November, down 1.0% (a negative 0.02-point contribution). It followed a 2.9% rise (a positive 0.06-point contribution) in October and 15 months of double-digit percentage gains through June 2022.
* Electricity charges rose 20.2% on the year (+0.75 point) in January, slowing from 21.3% (+0.78 point) in December, while the year-over-year increase in city gas prices accelerated further to 35.2% (+0.35 point) from 33.3% (0.33 point) the previous month.
* Looking ahead, households will see some easing in elevated utility costs as the government is providing 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 prices for food excluding perishables posted the 19th straight year-over-year increase, up 7.4% (+1.66 points), little changed from 7.4% (+1.67 points) in December, but was up from 6.8% (+1.54 points) in November. It remains the largest increase in more than 46 years, since the 7.6% surge in August 1976. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), potato chips, meat (domestic pork), milk and cooking oil. Many food and beverage producers raised retail prices on Oct. 1 at the start of the second half of fiscal 2022 and have continued passing higher costs onto consumers. More price hikes are expected in coming months.
* The prices for household durable goods (heat pumps, etc.) marked the 10th consecutive gain from year-earlier levels. The pace of increase has remained just above 10% in recent months, at 11.1% (+0.14 point) in January, 10.8% (+0.14 point) in December and 10.7% (+0.15 point) in November.