Japan July Producer Inflation Eases Further to Fresh 2-Year Low of 3.6% from June’s 4.3% on Energy Subsidies, Plunging Lumber Prices

–Producer Prices Post 1st M/M Rise in 3 Months on Rebound in Fuels, Non-Ferrous Metals

–July’s 3.6% Y/Y Rise Lowest Since 1.0% in March 2021

–Corporate Goods Price Index’s 10.6% Surge in December 2022 Highest in 42 Years 

By Max Sato

(MaceNews) – Producer inflation in Japan eased for the seventh straight month in July, hitting a new two-year low, as the government’s expanded utilities subsidies continued to cap energy costs and many commodities markets remained tame on slowing global growth, data released Thursday by the Bank of Japan showed.

The data also showed business import prices posted the fourth straight year-over-year decline, which is expected to ease the burden of households with a delay of about six months.

In its quarterly Outlook Report for July, the BOJ board revised up its forecast for consumer inflation for fiscal 2023 ending next March to 2.5% from 1.8% projected in April while predicting that inflation will lose some steam from 3.0% in fiscal 2022 and fail to be anchored around the bank’s 2% target in a sustainable manner, averaging 1.9% (revised down from April’s 2.0%) in fiscal 2044 and 1.6% (unchanged) in fiscal 2015.

The key points of CGPI:

* The corporate goods price index (CGPI) rose 3.6% on the year in July, just above the median economist forecast of a 3.5% rise (forecasts ranged from 3.2% to 3.9% gains). It was the 29th consecutive gain and the slowest pace of increase since 1.0% seen in March 2021, following increases of 4.3% (revised from 4.1%) in June, 5.3% (revised from 5.2%) in May, 6.1% in April (revised from 6.0%) in April, 7.4% in March, 8.3% in February and 9.6% in January. December’s 10.6% rise remains the highest in 42 years, since November 1980, when the index rose 11.8 percent during the 14-month period of double-digit percentage gains through December 1980 in the wake of the 1979 oil crisis triggered by the Iranian Revolution.

* On the month, the domestic CGPI edged up 0.1% in July after falling 0.1% (revised from a 0.2% drop) in June, dipping 0.7% in May and rising 0.3% in April, and slowing from the recent peak of a 1.6% rise hit in April 2022. It was lower than the median economist forecast of a 0.2% rise (forecasts ranged from a 0.3% drop to a 0.6% gain). The month-over-month increase was led by higher costs for fuels (gasoline, diesel), production equipment and non-ferrous metals as well as food and beverages (whisky, wheat flour, bread).

* The yen appreciated slightly to an average ¥142.18 to the dollar in July from ¥144.85 in June, but it was still weaker than ¥137.39 in May, ¥133.40 in April and ¥132.78 in July 2022. Combined with easing energy and commodities markets, an earlier appreciation of the yen since late last year had helped lower import costs from elevated levels. The dollar briefly surged to a 32-year high of ¥151.94 in October 2022 but Japan’s second wave of massive yen-buying forex intervention pushed it down to a low of ¥143.55 in the same month.

* The CGPI’s import price index posted the fourth straight decline on the year. In yen terms, the index fell 14.1% in July after dropping 11.4% in June, 5.4% in May and 3.7% in April and rising 9.4% in March. In contract currencies, the index dipped 15.6% in July after decreases of 14.3% in June, 9.5% in May and 7.3% in April and a 0.1% rise in March. The yen-based import price increase peaked at 49.2% in July 2022. The dollar was unchanged on the month against the yen in July after appreciating 2.8% in June and 3.0% in May and depreciating 0.4% in April, BOJ data showed.

* Producer costs for electric power, gas and water fell 3.3% on the year in July after rising 4.4% in June and posting double-digit percentage gains earlier. The government began providing utilities subsidies in January and the program will continue through September.

* Iron and steel prices posted a slower increase of 4.0% after rising 7.6% the previous month. Those for chemicals fell 3.3% after a 3.8% drop. The prices for non-ferrous metals rose 5.8% in July after falling 0.5% in June.

* The prices for petroleum and coal products also rebounded 1.7% on the year in July after dipping 2.5% in June. The prices for lumber and wood products plunged 23.1% from a year earlier for the ninth straight drop after falling 22.2% in June.

* The prices for ceramic, stone and clay products eased further to a 15.2% rise on the year in July from a 16.7% gain the previous month. Metal product prices were up 7.3%, slowing from a 9.6% rise.

* The prices for foods and beverages — a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI — rose 6.1% on the year in July after rising 7.7% in June. Those for transport equipment (150.9 weight) rose 3.0% after a 3.6% gain the previous month.