–Electricity Leads Higher Energy Bills; Gasoline Price Rise Continues to Shrink
–Core CPI +2.6% Y/Y Hits 30-Year High Excluding 2014, 1997 Sales Tax Hikes
–Total CPI +2.9% Y/Y Over 30-Year High Excluding Sales Tax Hikes’ Direct Impact
–BOJ to Keep Easing Stance Until Stable 2% Inflation Anchored with Real Wage Gains
By Max Sato
The Bank of Japan board last month decided to maintain its super-low interest rate targets along the yield curve and large asset purchases, as expected, to help the economy fully recovery from the pandemic-caused slump.
BOJ Governor Haruhiko Kuroda has repeatedly said the bank would not consider raising interest rates while inflation is not accompanied by solid wage growth (real wages are falling) and supply continues to exceed demand in the Japanese economy. The BOJ board has projected inflation is unlikely to be anchored around its 2% target at least for the next few years.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards rose 2.6% in August in line with the median economist forecast of a 2.6% rise. It is the 12th straight year-on-year rise after rising 2.3% in July, 2.1% in June, 1.9% in May and April and posting modest gains of 0.8% in March and 0.5% in February.
* Prices for both fresh and processed food, ranging from vegetables, fruits and fish to bread, imported beef and sushi (for takeout and at restaurants), continued pushing consumer inflation higher while semiconductors shortages and logistical bottlenecks are keeping the prices for home appliances, smart phones and computers at elevated levels.
* Utilities charges rose close to 30% above year-earlier levels in August, reflecting tighter international oil and gas markets earlier in the year, and pushing up the contribution of the overall energy price to the CPI. By contrast, the pace of year-on-year increase in gasoline prices has eased to just under 6% as the government has been trying to cap retail gasoline price markups by providing subsidies to refineries.
* The core CPI’s annual rate is now the fastest since October 2014, when the index rose 2.6% in the middle of a 12-month cycle of being boosted by a sales tax hike to 8% from 5% in April 2014 (the sales tax is currently at 10% after another rise in 2019). Excluding the direct impact of the sales tax increases in 2014 and 1997 (the latter to 5% from 3%), it is the highest in three decades, since the 2.6% rise in June 1992.
* The core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – rose 1.4% on the year in August for the fifth straight rise, firmer than the median forecast of a 1.3% rise. It followed a 1.2% increase in July and the first year-on-year rise in 13 months in April with a 0.8% rise. This measure does not receive support from higher energy prices but it has been on an uptrend in the face of markups in other items.
* The total CPI surged 2.9% on year in August, marking the 12th straight year-on-year gain, coming in higher than the median forecast of a 2.7% gain. It followed increases of 2.5% in July, 2.3% in June and 2.4% in both May and April. The 2.9% increase is the largest in eight years since June 2014, when the index gained 3.0%. Excluding the direct impact of the sales tax hikes of 2014 and 1997, it is the highest inflation rate since December 1991, when the index rose 3.0%.
* Fresh food prices, a volatile factor, continued rising, up 10.1% on year in August, pushing up the overall index by 0.39 percentage point, after a 9.3% rise and a 0.35-point contribution the previous month.
* Energy prices soared 25.6% on year in August, pushing up the total index by 1.22 percentage points. The pace of year-on-year increase accelerated for the second straight month following a 23.5% rise (+1.13 points) in July. In March, the pace of increase decelerated for the first time during the current year-on-year rise period that began in July 2021 after nearly two years of decline.
* In the energy category, the pace of increase in gasoline prices decelerated further to 5.8% (a positive 0.03-point contribution) from 7.9% (+0.05 point) in July, 11.1% (+0.06 point) in June and 11.6% (+0.07 point) in May. Electricity charges picked up the pace, up 29.0% (+0.77 point) following increases of 25.5% (+0.67 point) in July, 22.3% (+0.59 point) in June and 23.0% (+0.60 point) in May. City gas prices rose 28.5% (+0.41 point), also firming from 27.2% (+0.40 point) in July, 25.4% (+0.37 point) in June and 25.8% (+0.37 point) in May.
* Food excluding perishables gained 3.8% (+0.82 point contribution) in August after rising 3.6% (+0.77 point) in July and 3.1% (+0.66 point) in June. The pace of increase continued to accelerate as more companies are trying to pass high producer costs onto consumers. Global supply conditions remain tight and the depreciation of the yen is also pushing up import prices.
* Prices for household durable goods rose 4.2% on year and pushed up the CPI by 0.05 percentage point in August after rising 4.3% (+0.05 point) in July and
surging 9.1% (+0.10 point) in June. Global logistical bottlenecks continue but there is some easing in supply delays. The prices of durable goods posted the first year-on-year rise in six months in April, when they rose 5.5% and added 0.06 point to the total index, after a 1.1% dip (-0.01 point) in March and a 4.1% slump (-0.05 point) in February.
* Accommodations costs rose 2.9% on year (+0.04 point contribution) in August after rising just 0.2% (zero point) in July, 3.6% (+0.04 point) in June and 5.2% (+0.06 point) in May. Despite reopening demand for traveling, the rate of increase in hotel charges has been modest as the government is providing fiscal support to prefectures that offer hotel discounts to residents in a smaller scale compared to its 2020 program. Double-digit percentage gains seen in the second half of calendar 2021 were in reaction to sharp drops seen a year before.
* The government suspended its controversial ‘Go To Travel’ campaign in late December 2020 after seeing a spike in coronavirus cases and has been cautious about resuming it. The program was launched in July 2020 to subsidize hefty discounts on hotel fees and domestic transportation costs.
* The downward pressure from sharp discounts on mobile communications fees that began in April 2021 has already waned. The prices for this service fell 14.4% on year (a negative 0.17-point contribution) in August after falling 21.0% (-0.28 percentage point) in June. It was much smaller than the 52.7% plunge (-1.08 points) in March.