–Processed Food Prices Still 9% Above Year-Earlier Levels, Hotels Up Sharply on Travel Demand
–Total CPI Moderates to +3.2% Y/Y from +3.3% due to Smaller Fresh Food Price Rise
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Remains at 42-Year High of 4.3%
By Max Sato
(MaceNews) – Consumer inflation in Japan was largely steady in August as processed food prices remained elevated and higher costs for gasoline and hotels offset sharp drops in subsidized utility prices, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core measure (excluding fresh food prices) rose 3.1% on the year after rising at the same pace in July as the prices for food excluding perishables stayed more than 9% above year-earlier levels. Service price gains continued to accelerate as many firms have raised wages to secure workers this year while the prices the upward pressure on goods prices moderated.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) stayed at a 42-year high of 4.3% but the year-over-year increase in the total CPI eased to 3.2% in August from 3.3% in July on a smaller rise in fresh food prices.
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% in fiscal 2044 and 1.6% in fiscal 2015.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.1% from a year earlier in August, compared to the median economist forecast for a 3.0% rise (forecasts ranged from 2.9% to 3.1%). It is the 24th straight year-over-year increase after rising 3.1% in July, 3.3% in June, 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 average cash earnings per employee are still below year-earlier levels after adjusted for inflation. Service prices excluding owners’ equivalent rent rose 3.0% on the year in August, accelerating further from 2.9% in July. Goods prices excluding fresh food gained 4.1%, easing from a 4.3% rise the previous month.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 4.3% on the year in August, following increases of 4.3% in July, 4.2% in June, 4.3% in May and 4.1% in April. It is the 17th straight year-over-year increase and was in line with the median economist forecast for a 4.3% rise (forecasts ranged from 4.3% to 4.4%). The 4.3% rise is the largest in 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 3.2% on year in July, marking the 24th consecutive year-over-year increase, after rising 3.3% in July and June, 3.2% in May and 3.5% in April. It was slightly above the median forecast of a 3.1% rise (forecasts ranged from 3.0% to 3.1%). Fresh food prices, a volatile factor, rose 5.3% on year and pushed up the overall index by 0.22 percentage point after rising 6.5% (up 0.26 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 9.8% on year in August, pushing down the CPI by 0.84 percentage point, after falling 8.7% with a negative 0.74-poing contribution. The 0.7% drop (minus 0.06 point) in February was the first drop since March 2021.
* Gasoline prices rose 7.5% on the year, adding 0.16 percentage point to the CPI in August, after posting their first year-over-year rise in six months in July with a 1.1% gain (plus 0.02-point contribution) and a 1.6% drop with a negative 0.04-point contribution in June. Retail gasoline prices hit record highs in August and early September as the government had scaled back subsides to refineries and the yen remains weak, keeping import costs high.
* Electricity charges plunged 20.9% on the year (minus 0.85-point contribution) in August after falling 16.6% (minus 0.67 point) in July. In February, they marked the first drop since July 2021. The government began providing utilities subsidies in January (reflected in February bills onward). The program was originally scheduled to end in September but in the face of the recent rise in energy markets, the government has decided to extend it throughout the year.
* The prices for “city gas” (natural gas supplied through pipelines) dipped 13.9% with a negative 0.16-point contribution in August, after falling 9.0% (minus 0.10-point contribution) in July and posting their first year-over-year decline in 21 months in June, down 2.8% (minus 0.03 point).
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 26th straight year-over-year increase, up 9.2% (plus 2.08 points) after rising 9.2% (plus 2.08 points) in July. 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), eating out (hamburgers), snacks (ice cream) and soft drinks, as seen in recent months.
* The prices for household durable goods marked their 17th consecutive gain but the pace of increase decelerated further to 3.0% (plus 0.04-point contribution) in August from 6.0% (plus 0.09 point) in July and 6.7% (plus 0.10 point) in June and six months of double-digit percentage gains through February. Many people had purchased furniture and appliances in the early phase of the pandemic when they spent more time at home.
* Mobile phone communications fees rose 10.2% (plus 0.13 point) in August after accelerating to a 10.2% increase (positive 0.13 point) in July from a 2.9% gain (0.04 point) in June.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 18.1% on the year (plus 0.19-point contribution) in August after a 15.1% rise in July (0.15 point). Pent-up demand for traveling remains strong and the number of visitors from overseas has been rising, offsetting the slight downward pressure from travel subsidies.