–Total CPI +2.5% Y/Y Vs. +2.7% in March Despite High Fresh Food Prices
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases to 19-Month Low of 2.4%
By Max Sato
(MaceNews) – Consumer inflation in Japan moderated in all three key measures in April in light of easing food and durable goods markups, offsetting the slight upward pressure from the first rise in energy costs in many months after the base effect of utility subsidies had waned earlier this year and global commodities markets were on the rise again, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core CPI (excluding fresh food prices), closely watched by the Bank of Japan for its policy stance, rose at the slowest pace in three months, up 2.2% on the year, after a 2.6% gain in March, in line with the consensus call of a 2.2% increase. The year-over-year increase in the total CPI continued easing to 2.5% from 2.7% despite faster fresh food price rises, coming in just above the median forecast of a 2.4% rise.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) decelerated to a 19-month low of 2.4% from 2.9%, also above the median forecast of a 2.5% rise. The annual rate for this narrow indicator had been at or above 3.0 percent from December 2022 until February 2024.
Consumer inflation in Tokyo, the leading indicator of the national average, decelerated much faster than expected in April (the core CPI annual rate slowed to 1.6% from 2.4% in March) as completely free high school education took effect in the Tokyo metropolitan area, pushing down the CPI by 0.51 percentage points, but its impact on the national index was limited as other parts of the country didn’t follow the capital’s lead in removing the upper limit on household income from eligibility conditions for additional financial support. Overall education costs in Tokyo plunged 8.8% on year in April with a negative 0.40-point contribution while they fell just 0.9% (minus 0.03 point) in the national data.
Service costs have seen gradual upward pressures as many firms are offering higher wages to secure workers amid widespread labor shortages. Service prices excluding owners’ equivalent rent rose 2.5% on the year in April, pushing up the total CPI by 0.79 percentage point, following increases of 2.9% (plus 0.94 point) in March and 3.1% in February. Goods prices excluding fresh food gained 2.6% (plus 1.28 points), after rising 3.1% (plus 1.50 point) and 3.4% in February.
As part of the process of normalizing its highly accommodative monetary policy, the Bank of Japan is expected to gradually raise the target for overnight interest rates in coming months. At its previous meeting in April, the bank’s nine-member board decided in a unanimous vote to hold the short-term rate target steady in a range of zero to 0.1 percent, as widely expected, after conducting its first rate hike in 17 years and ending the seven-year-old yield curve control framework in a 7 to 2 vote in March.
Other details from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.2% from a year earlier in April for the 32nd year-on-year increase, easing further from 2.6% in March. It was the slowest rise since 2.0% in January 2024. The 4.2% surge in January 2023 was a 41-year high, the largest increase since the 4.2% gain in September 1981.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 2.4% on the year in April for the 25th straight year-over-year increase but the pace of increase was the slowest since the 1.8% gain in September 2022. The 4.3% annual rate recorded in May, July and August 2023 was the largest in 42 years, since the 4.5% increase June 1981.
* The total CPI rose 2.5% on year in April for the 32nd consecutive year-over-year increase, down from 2.7% in March and 2.8%, but is higher than 2.2% in January this year. The 4.3% increase in January 2023 was a 41-year high, the largest since the 4.3% rise in December 1981. Fresh food prices, a volatile factor, rose 9.1% on year and pushed up the overall index by 0.38 percentage point in April after rising 5.5% (up 0.23 point) the previous month.
* Among key components of the CPI basket of goods and services, energy prices inched up 0.1% on year in April, pushing down the CPI by 0.01 percentage point, after falling just 0.6% with a negative 0.04-piont contribution in March and a 12.1% drop (minus 1.07 points) at the start of the year. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 4.4% on the year, adding 0.09 percentage point to the CPI following a 4.3% gain (a positive 0.09-point contribution) the previous month. The government has scaled back subsides to refineries.
* Electricity charges dipped 1.1% on year (a negative 0.01-point contribution) after sliding 1.0% (minus 0.03 point) in March, stabilizing after a 21.0% drop (minus 0.90 point) in January. In February 2023, they marked the first drop since July 2021. The government began providing utilities subsidies in January 2023 (reflected in February bills onward). The program has been extended until then end of May 2024.
* The prices for natural gas supplied to homes fell 5.9% with a negative 0.07-point contribution, after falling 10.1% (minus 0.12 point) in March, also easing from a 22.8% plunge (minus 0.30 point) in January.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 34th straight year-on-year increase but the pace slowed further to 3.5% (plus 0.83 point) in April from 4.6% (plus 1.09 points) in March. It down from 9.2% (plus 2.08 points) in August and July 2023, which was the largest increase in more than 46 years since the 9.9% surge in October 1975.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 18.8% on year (plus 0.19 point) in April, slowing from 27.7% (plus 0.25 point) in March. The 59.0% jump (plus 0.43 point) in December 2023 was in reaction to a slump in hotel fees in late 2022. The government in October that year began subsidizing domestic travel under a new nationwide program to support the pandemic-hit tourism industry. It was phased out by the 2023.
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