–Energy Subsidies, Softer Commodities Somewhat Easing Consumer Inflation
–Total CPI +3.5% Y/Y V. +3.2% Y/Y in March, 41-Year High of +4.3% in January
–Core-Core CPI (Ex-Fresh Food, Energy) Hits Fresh 41-Year High of +4.1% Y/Y, Largest Gain Since +4.2% in September 1981
By Max Sato
(MaceNews) – Consumer inflation in Japan picked up to around 3.5% in April in both the total and core indexes after being steady to slightly lower in March and slowing significantly in February, as processed food and durable goods suppliers continued raising prices to reflect elevated costs, outpacing the effects of utility and gasoline subsidies, data from the Ministry of Internal Affairs and Communication released Friday showed.
The annual rate of the core-core index (excluding fresh food and energy) accelerated to just above 4%, reflecting a widespread move among processed food suppliers to pass last year’s spike in producer and import costs onto customers while energy prices continue to fall.
The Bank of Japan’s policy board under the new governor, Kazuo Ueda, maintained its monetary easing stance at its meeting on April 27-28, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to guide inflation toward the stable 2% target with sustained wage growth.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.4% from a year earlier in April in line with the median economist forecast for a 3.4% rise. It is the 20th straight year-over-year increase after rising 3.1% in both March and February (the first deceleration in 13 months), 4.2% in January and 4.0% in December.
* The 4.2% rise in January 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.
* Service prices in Japan are subdued due to relatively slow wage hikes but they have moved up in recent months as more companies are providing special allowances to tide over high costs for daily necessities and some firms are raising salaries to secure qualified workers. Service prices excluding owners’ equivalent rent rose 2.4% on the year in April, up from 2.2% in March. Goods prices, which include fresh food, gained 5.1%, up from 4.8% in March.
* Bank of Japan’s policy board has projected that the increase in the core CPI would slow to 1.8% in fiscal 2023 from 3.0% in fiscal 2022 that ended in March as the base effects of last year’s spike in energy and commodities prices fade. For fiscal 2024, the board expects the core reading to rise 2.0%, noting the impact of government subsidies to cap retail gasoline and utility prices will wane. But its forecast for 2025 is a lower 1.6%, indicating the banks’ battle to reflate the economy may be prolonged.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – surged 4.1% on year in April, recording a fresh 41-year high. It accelerated from 3.8% in March and 3.5% in February, marking the 13th straight increase. It was just below the median economist forecast for a 4.2% rise. The 4.1% rise is the largest since the 4.2% increase September 1981. This narrow measure is without the effects of energy cost fluctuations. It has been pushed up by markups in various items including processed food.
* The total CPI rose 3.5% on year in April, marking the 20th consecutive year-over-year increase, after rising 3.2% in March, 3.3% in February and 4.3% in January. It was in line with the median forecast of 3.5%. Fresh food prices, a volatile factor, rose 5.3% on year and pushed up the overall index by 0.22 percentage point after rising 5.4% (up 0.22 point) the previous month. The 4.3% increase January’s total CPI is a 41-year high, the largest since the 4.3% rise in December 1981.
* Among key components of the CPI basket of goods and services, energy prices slumped 4.4% on year in April, pushing down the CPI by 0.37 percentage point, after falling 3.8% with a negative 0.32-point contribution in March and dipping 0.7% (minus 0.06-point contribution) in February, which was the first drop since March 2021. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries. The utilities subsidies that took place in January and were reflected in February bills will continue through September.
* Gasoline prices fell 3.3% on year in April, making a negative 0.08 percentage point contribution to overall consumer prices, after falling 4.7% with a negative 0.11 percentage point contribution in March.
* Electricity charges dropped 9.3% (-0.36 point) in April after falling 8.5% (-0.32 point) in March and sliding 5.5% (-0.21 point) in February for the first drop since July 2021 after rising 20.2% (+0.75 point) in January. The year-on-year increase in city gas prices continued slowing to 5.0% (+0.06 point) from 10.0% (+0.11 point) in March, 16.6% (+0.17 point) in February and 35.2% (+0.35 point) in January.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 22nd straight year-over-year increase, up 9.0% (+2.02 points) after rising 8.2% (+1.85 points) in March. It is the largest increase in more than 46 years, since the 9.1% surge in May 1976. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), snacks and soft drinks.
* The prices for household durable goods (air conditioners, etc.) marked the 13th consecutive gain from year-earlier levels. The pace of increase accelerated to 9.8% (+0.14 point) from 9.4% (+0.12 point) in March.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, pushed up the CPI’s year-on-year increase by 0.08 percentage point in April, thanks to strong reopening demand for traveling and despite slight downward pressure from travel subsidies. Hotel fees slipped 0.6% on the year with the a negative 0.01-point contribution in March after falling 6.1% (-0.06 point) in February.
* Auto insurance premiums fell 11.5% on year in April, trimming the CPI increase by 0.04 point, after being flat in March.