–Core CPI (Ex-Fresh Food) Y/Y Rise Highest Since +4.0% in December 1981
–Core-Core CPI (Ex-Fresh Food, Energy) +3.0% Y/Y, 31-Year High Since +3.0% in August 1991
–Total CPI +4.0% Y/Y, Nearly 32-Year High; Largest Since +4.0% in January 1991 in Wake of 1990-1991 Gulf War
By Max Sato
(MaceNews) – Consumer inflation in Japan accelerated in December, with the core measure setting a 41-year high of 4.0%, as more firms raised prices for a wide range of food and beverages and city gas providers continued passing high energy and import costs on to users, data from the Ministry of Internal Affairs and Communication released Friday showed.
The yen has regained some ground against the dollar but remains relatively weak compared to its year-earlier levels, eroding Japan’s purchasing power and keeping the costs for importing materials and products high. The prices for food excluding perishables rose at its fastest pace in 46 years, having a bigger impact on inflation than energy in recent months.
The current spike in consumer inflation has been caused by elevated energy and commodities costs and supply constraints. Unlike in North America, service prices in Japan are subdued, up just 0.8% on year in December, compared to a 7.1% surge in goods prices, as wage growth remains slow.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) soared 4.0% from a year earlier in December in line with the median economist forecast for a 4.0% rise. It is the 16th straight year-over-year increase after rising 3.7% in November, 3.6% in October and 3.0% in September. The 0.1% rise in September 2021 was the first increase in 18 months.
* The 4.0% rise is a 41-year high, the largest increase since the 4.0% rise in December 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.
* The Bank of Japan’s quarterly Outlook Report released Wednesday showed the median forecast by the nine-member board for the core CPI annual rate was revised up to 3.0% for fiscal 2022 ending next March from 2.9% projected in October. The average of year-over-year gains in the core reading for the first nine months of fiscal 2022 is 2.9%, compared to a 0.1% rise in the full year of fiscal 2021.
* The board projected that the increase in the core CPI would slow to 1.6% in fiscal 2023 as the base effects of the current spike in energy and commodities prices fade, unchanged from its October forecast. For fiscal 2024, the board expects the core reading to rise 1.8%, slightly higher than its 1.6% projection made three months ago, noting the impact of government subsidies to cap retail gasoline and utility prices will wane. Governor Haruhiko Kuroda told reporters on Wednesday that the bank needs to maintain its accommodative monetary policy stance until inflation reaches stable 2% with solid wage growth and a positive output gap.
* For the whole of calendar 2022, the core CPI jumped 2.3% on the year after dipping 0.2% in both 2021 and 2020 and following modest gains of 0.6% in 2019, 0.9% in 2018 and 0.5% in 2017, a 0.3% slip in 2016 and increases of 0.5% in 2015 and 2.6% in 2014, the latter of which was inflated by the three-percentage-point hike in the sales tax rate in April that year. Excluding the direct impact of tax changes, the 2.3% rise is the largest since the 2.9% rise in 1991.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — accelerated to 3.0% in December from 2.8% in November and 2.5% in October, marking the ninth straight increase and is now an over 31-year high. It came in just under the median economist forecast for a 3.1% rise. The 3.0% rise is the largest since the 3.0% increase in August 1991 in the aftermath of the Gulf War that began in August 1990 and lasted for about seven months. This narrow measure is not receiving support from elevated energy prices but has been gradually pushed up by markups in various items.
* As a reference forecast, the BOJ board projected this week that the core-core CPI would rise 2.1% in fiscal 2022 (so far up 1.7%), revised up from its October forecast of 1.8%, and that the increase would slow to 1.8% (revised up from 1.6%) in fiscal 2023 and 1.6% (unrevised) in fiscal 2024.
* The total CPI surged 4.0% on year in December, marking the 16th consecutive year-over-year increase after increases of 3.8% in November, 3.7% in October and 3.0% in September. It came in slightly below the consensus forecast of a 4.1% increase. Fresh food prices, a volatile factor, rose 4.9% on year and pushed up the overall index by 0.19 percentage point after rising 7.3% (up 0.29 point) the previous month. The 4.0% increase in total CPI is nearly a 32-year high, the largest since the 4.0% rise in January 1991 in the wake of the 1990-1991 Gulf War.
* Among key components of the CPI basket of goods and services, the pace of year-on-year increase in energy prices accelerated to 15.2% in December from 13.3% in November to match October’s 15.2% after recent deceleration. Energy’s contribution rose to 1.21 percentage points from 1.06 points the previous month. The pace of increase has slowed from a recent peak of 20.8% (+1.46 points) in March 2022. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries, resulting in a smaller contribution of overall energy prices to the CPI in recent months.
* Gasoline prices rose 1.6%, making a positive 0.04 percentage point contribution to overall consumer prices, after posting their first year-on-year drop in 21 months in November, down 1.0% (a negative 0.02-point contribution). It followed a 2.9% rise (a positive 0.06-point contribution) in October and 15 months of double-digit percentage gains through June.
* Electricity bills rose 21.3% on the year (+0.78 point) in December, up from
20.1% (+0.72 point) in November after slowing further from 20.9% (+0.74 point) in October. The year-on-year increase in city gas prices accelerated further to
33.3% (0.33 point) from 28.9% (+0.28 point) the previous month.
* Looking ahead, however, households will see some easing in elevated utility costs as the government will provide subsidies to consumer electricity and natural gas providers from January to September this year, which will be reflected in utility bills, and thus CPI data, in February onward.
* The prices for food excluding perishables posted the 18th straight year-over-year increase, up 7.4% (+1.67 points) and accelerating further from 6.8% (+1.54 points) in November from 5.9% (+1.33 points) in October. It was the largest increase in more than 46 years, since the 7.6% surge in August 1976. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), potato chips, soft drinks, meat (domestic pork), milk and cooking oil. Many food and beverage producers raised retail prices on Oct. 1 at the start of the second half of fiscal 2022 and continued passing higher costs onto consumers.
* The prices for household durable goods (air conditioners/heaters, etc.) marked the ninth consecutive gain from year-earlier levels. The pace of increase was little changed at 10.8% (+0.14 point) after easing to 10.7% (+0.15 point) in November from 11.8% in October (+0.16 point). Their prices fell 2.4% on the month.
* Accommodations charges fell 18.8% on the year with a negative 0.18-point contribution to the CPI in December after slumping 20.0% (-0.19 point) in November. Hotel fees marked their first year-on-year drop in 17 months in October, down 10.0% (-0.09 point), after rising 6.6% (+0.06 point) in September. The government began subsidizing domestic travel under a new nationwide program in October.