By Max Sato
(MaceNews) – Japanese consumer prices posted a slightly sharper drop in December as energy costs continued falling. But a spike in coronavirus cases later in the month appeared to have slowed the use of the government-financed hefty discounts on hotel and transport charges, data from the Ministry of Internal Affairs and Communication released Friday showed.
Prime Minister Yoshihide Suga has suspended the controversial “Go To Travel’ program launched in July to subsidize part of domestic accommodations and transport costs in the face of surging new coronavirus cases. The government is also urging restaurants and bars to close by 8 p.m. and asking people to stay home as much as they can.
The key price measure is drifting further away from the Bank of Japan’s 2% inflation target, which was adopted in January 2013 as part of the then Prime Minister Shinzo Abe’s reflationary policy mix of massive monetary easing, flexible fiscal spending and promises of deregulation.
The BOJ board Thursday maintained its policy stance after extending the period of special easing tools last month amid growing downside risks, while continuing to forecast that the domestic economy will recover part of the pandemic-triggered contraction in the next fiscal year and prices will crawl out of the current drops and edge toward 1% in about two years.
In the bank’s quarterly Outlook Report, the median forecast for the core CPI by the nine-member board was revised up slightly to -0.5% for fiscal 2020 ending in March from -0.6% projected three months ago. The median inflation forecast for fiscal 2021 was revised up slightly to +0.5% from +0.4% made in October and that for fiscal 2022 was unchanged at +0.7%.
The key points from CPI data:
- The national average core consumer price index (excluding fresh food) slipped 1.0% from a year earlier in December after falling 0.9% in November. It was slightly firmer than the median economist forecast of a 1.1% drop. Lower utility costs are the main force behind the sliding consumer prices.
- It was the fifth straight year-on-year decline in the core CPI, and the seventh in 2020, as government-sponsored discounts on accommodations and transportation also put a damper on overall prices.
- In 2020, the core CPI fell 0.2% after rising 0.6% in 2019, marking the first annual decline since -0.3% in 2016, due to lower energy prices as well as government subsidies for education and domestic traveling costs.
- As seen in the December central Tokyo CPI data released last month, there was a couple of temporary factors that led the larger year-on-year drops in consumer prices.
- In the national data, prices for mobile phones fell 4.5% on year in December, trimming the total CPI by 0.03 percentage point, after rising 0.3% and making no contribution to the index (the same as in the Tokyo data). This was in reaction to the introduction of new models of Android smartphones in December 2019, which led to overall markups in mobile phone prices then. Golf club prices dipped 0.2% in December (zero contribution) after surging 42.5% (+0.03-point contribution) in November because their prices picked up in December 2019, with new products hitting the market at the time after a constant decline through November 2019.
- The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – fell 0.4% in December after falling 0.3% in November, marking the third y/y drop in a row.
- Total CPI plunged 1.2% on year in December after slipping 0.9% the previous month as prices for fresh food pushed down the total index by 0.20 percentage point. It was the biggest slump since -1.2% recorded in April 2010.
- In the total CPI, energy costs fell 8.1% y/y in December (-7.6% in November), pushing down the indicator by 0.64 percentage point (0.60 point the previous month), while prices for food excluding perishables – another key item in the CPI basket of goods and services – dipped 0.1% y/y with a negative 0.01 percentage-point contribution (the same as in November).
- Accommodations prices continued to slump in December, down 33.5% on year and pushing down the total CPI by 0.40 percentage point, but this category’s downward pressure continued easing from November, when the prices fell 34.4% and trimmed the total reading by 0.42 point.
- On the upside, household durable goods prices rose 3.2% in December with a positive 0.03 percentage-point contribution (vs. +2.1%, +0.02 point in November) as people are spending more time at home.
Contact this reporter: max@macenews.com.
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