Electricity Charge Markups; Processed Food Prices Remain High
–Total CPI +3.3% Y/Y, Also Up From +3.2% in May but Slowing from +3.5% Y/Y in April, 41-Year High of +4.3% in January
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases to 4.2% from May’s Nearly 42-Year High of 4.3%
By Max Sato
(MaceNews) – Consumer inflation in Japan was relatively stable just above 3% in June, with both the total CPI and the core measure (excluding fresh food prices) ticking up to 3.3% from 3.2% in May as markups by power companies led to a smaller drop in overall energy costs and processed food prices remained over 9% above year-earlier levels, data from the Ministry of Internal Affairs and Communication released Friday showed.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) slowed slightly to 4.2% from a 41-year high of 4.3% for the year through May, indicating that widespread retail price hikes for food and durable goods may be peaking soon, as seen in a third straight year-over-year drop in producer import costs in June.
At its July 27-28 meeting, the Bank of Japan’s policy board is expected to vote unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and relatively large asset purchases to continue seeking stable 2% inflation and support sustainable wage growth.
At the same time, the board will continue debating the costs and benefits of the yield curve control policy framework that was adopted in September 2016 and the negative overnight interest rate target introduced in January 2016.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.3% from a year earlier in June in line with the median economist forecast for a 3.3% rise. It is the 22nd straight year-over-year increase after rising 3.2% in May, 3.4% in April, 3.1% in both March and February (the first deceleration in 13 months) and 4.2% in January.
* 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 have moved up in recent months as more firms are raising wages to secure workers, although the average cash earnings per employee are falling in real terms. Service prices excluding owners’ equivalent rent rose 2.3% on the year in June, slightly slower than a 2.5% increase in May. Goods prices excluding fresh food gained 4.9%, up from a 4.6% rise the previous month after easing in recent months.
* 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.
* In its quarterly Outlook Report due July 28, the board is expected to revise up its median forecast for consumer inflation to above 2% in the core CPI for fiscal 2023 from 1.8% projected in April while it is likely to make little change to its projections of 2.0% for fiscal 2024 and 1.6% for fiscal 2025 amid uncertainty over global growth and domestic wage hikes in the next fiscal year starting in April 2024.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – eased slightly to 4.2% on year in June after hitting a fresh 41-year high of 4.3% in May and rising 4.1% in April, 3.8% in March and 3.5% in February. It is the 15th straight year-over-year increase and in line with the median economist forecast for a 4.2% rise. The 4.3% rise in May is the largest in nearly 42 years, since the 4.5% increase June 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 3.3% on year in June, marking the 22nd consecutive year-over-year increase, after rising 3.2% in May, 3.5% in April, 3.2% in March, 3.3% in February and 4.3% in January. It was also in line with the median forecast of a 3.3% rise. Fresh food prices, a volatile factor, rose 3.8% on year and pushed up the overall index by 0.16 percentage point after rising 5.2% (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 dropped 6.6% on year in June, pushing down the CPI by 0.56 percentage point, after slumping 8.2% with a negative 0.69-piont contribution in May, falling 4.4% (minus 0.37 point) in April, 3.8% (minus 0.32 point) in March and dipping 0.7% (minus 0.06 point) in February, which was the first drop since March 2021.
* The government has contained retail gasoline prices by providing subsidies to refineries. It also began providing subsidies for electricity and natural gas in January (reflected in February bills onward) and the program will continue through September, mitigating the impact of the latest markups by power companies that took effect in June.
* Gasoline prices fell 1.6% on year in June, making a negative 0.04 percentage point contribution to overall consumer prices, after falling 1.7% with a negative 0.04 percentage point contribution in May.
* Electricity charges dropped 12.4% (minus 0.49 point contribution) in June after falling 17.1% (minus 0.69 point) in May, 9.3% (minus 0.36 point) in April, 8.5% (minus 0.32 point) in March and 5.5% (minus 0.21 point) in February, the first drop since July 2021, after rising 20.2% (plus 0.75 point) in January. The prices for “city gas” (natural gas supplied through pipelines) posted their first year-over-year decline in 21 months, down 2.8% with a negative 0.03-point contribution, after rising 1.4% (plus 0.02 point) in May, 5.0% (plus 0.06 point) in April, 10.0% (plus 0.11 point) in March, 16.6% (plus 0.17 point) in February and 35.2% (plus 0.35 point) in January.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 24th straight year-over-year increase, up 9.2% (plus 2.07 points) after rising 9.2% (plus 2.07 points) in May. It remains the largest increase in more than 46 years, since the 9.9% surge in October 1975. Sharp price hikes were seen among many items including prepared food (fried chicken), cooking oil, eating out (hamburgers), snacks (ice cream) and soft drinks.
* The prices for household durable goods marked their 15th consecutive gain from year-earlier levels. The pace of increase decelerated to 6.7% (plus 0.10-point contribution) in June from 9.0% (+0.13 point) in May and six months of double-digit percentage gains through February. Producer import prices fell on the year for the third straight month in June as global energy and commodities markets have eased and the yen’s weakness, which has eroded Japan’s purchasing power, is not as serious as in September and October last year.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 5.5% in June, raising the CPI’s year-over-year increase by 0.05 percentage point, thanks to solid reopening demand for traveling and despite slight downward pressure from travel subsidies. Hotel fees rose 9.2% on the year in May, with a positive 0.09-point contribution.
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Contact this reporter: max@macenews.com
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