–Core CPI Rise Slows Also Due to Further Slowdown in Processed Food Markups, Smaller Hotel Fee Gain
–Total CPI Annual Rate Eases to 3-Month Low of 1.8% from 2.6% in March
–Core-Core CPI (Ex-Fresh Food, Energy) Y/Y Rise Slows to 19-Month Low of 1.8%
By Max Sato
(MaceNews) – Consumer inflation in Tokyo, the leading indicator of the national average, decelerated much faster than expected in April as completely free high school education took effect in the Tokyo Metropolitan area this month and gains in processed food and hotel fees continued easing, more than offsetting the waning base-year effect of utility subsidies that led to a smaller fall in energy prices, data from the Ministry of Internal Affairs and Communications released Friday showed.
The core CPI (excluding fresh food), closely watched by the Bank of Japan, posted a 1.6% gain on year, well below the median forecast of 2.2% and the slowest in 25 months, after increases of 2.4% in March, 2.5% in February and 1.8% in January. Without the price-cutting effect of the free education (minus 0.51 point), the core reading in the capital would have shown a 2.1% increase, according the ministry.
The year-over-year rise in the total CPI also slowed to a three-month low of 1.8% (consensus was 2.6%) after rising to 2.6% in March from 2.5% in February. Excluding the impact of the tuition (minus 0.49 point), the coverall CPI would have gained 2.3%.
The core-core CPI (excluding fresh food and energy) annual rate moderated sharply to a 19-month low of 1.8% from 2.9%, much lower than the consensus forecast of 2.6%.
The national government has been providing subsidies to slash high school tuition fees but the Tokyo prefectural government added its own financial support, removing the upper limit on household income from eligibility conditions and effectively making all public and private tuition free for grade 10 to 12 students.
Services costs had led overall inflation in recent months as firms are raising wages at a faster pace to secure qualified workers amid widespread labor shortages but the plunge in education costs pushed down services inflation this month.
The prices of services excluding owners’ equivalent rent gained 1.0% on the year in April, adding 0.36 point to the Tokyo CPI, following a 2.9% rise (plus 1.01 points) in March. The annual rate of goods prices excluding fresh food rose 2.5% (plus 1.06 points) after rising 3.0% (plus 1.25 points) the previous month.
The Bank of Japan board will try to see the underlying trend without special factors when it judges whether inflation is being anchored around the bank’s 2% target and wages are increasing in a sustainable manner.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards rose 1.6% on year in April, coming in much lower than the median economist forecast of a 2.2% rise (forecasts ranged from 2.0% to 2.4% gains). It is the 32nd straight year-over-year rise after rising 2.4% in March, 2.5% in February and 1.8% in January but the slowest since the 0.8% rise in March 2022. The slowdown of the core measure began in February 2023, when it eased sharply to 3.3% from a 41-year high of 4.3% in January 2023 as the effects of government subsidies for electricity and natural gas utilities kicked in.
* The core-core CPI (excluding fresh food and energy) — a key indicator of the underlying trend of inflation — rose 1.8% on the year in March for the 25th straight rise after rising 2.9% in March, 3.1% in February and 3.3% in January. It was also well below the median forecast of a 2.7% rise (forecasts ranged from 2.4% to 2.8%) and the slowest since the 1.7% rise in September 2022.
* The total CPI rose 1.8% on year in April, marking the 32nd straight year-over-year gain and following increases of 2.6% in March, 2.5% in February and 1.8% in January. It was below the median forecast of a 2.6% rise (forecasts ranged from 2.2% to 2.7% gains). January’s 1.8% rise was the slowest since the 1.3% gain in March 2022. The annual rate fell to 3.4% in February 2023 from a 41-year high of 4.4% the previous month. Fresh food prices, a volatile factor, rose 7.6% on year in April, pushing up the overall index by 0.32 percentage point, following a 6.2% rise and a 0.26-point contribution the previous month.
* Among new factors, private senior high school tuition fees slumped 61.7% on year in April, lowering the CPI by 0.40 point, after rising 0.6% with no contribution in March. Tuition fees for public senior high school plunged 94.5% with a negative 0.08-point contribution in April after being flat in the previous month.
* Food excluding perishables rose 3.2 percent on year (a 0.72-point contribution to the total CPI) in April, easing further from a 4.6% rise in March with a 1.05-point contribution. This category replaced energy as the largest positive contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points).
* Energy prices fell 2.9% on year in April, pushing down the total index by 0.15 percentage point, after dipping 5.3% (minus 0.28 point) in March, 7.9% (minus 0.43 point) in February and 20.1% (minus 1.26 points) in January.
* In the energy category, gasoline prices rose 4.4% on the year with a positive 0.03-point contribution to the CPI after a 4.6% rise (plus 0.03 point) the previous month. Retail regular gasoline prices hit record highs in early September 2023 as the government scaled back subsides to refineries.
* Electricity charges fell 2.1% on the year (minus 0.06 point) after slipping 3.0% (minus 0.08 point) the previous month. The prices for natural gas supplied to homes slid 7.0% (minus 0.13 point) after dipping 12.0% (minus 0.23 point). The government has been providing subsidies for electricity and natural gas since January 2023 (reflected in February bills onward). The program has been extended until April 2024.
* The prices for household durable goods fell 3.8% with a negative 0.05-point contribution to the CPI in April after rising 1.1% (plus 0.01 point) in March.
* Accommodations costs rose 18.8% on the year with a positive 0.23-point contribution in March after rising 27.7% (plus 0.31 point) in March, 33.3% (plus 0.36 point) in February and 26.9% (plus 0.29 point) in January. The acceleration from January to February was caused by an influx of visitors from China and other Asian countries during their lunar new year holidays. The recent surge in hotel fees is largely in reaction to a slump that began in late 2022. The government in October that year began subsidizing domestic travel under a new nationwide program, lowering the costs for tourism as part of economic stimulus measures through the first half of 2023 in many regions.