–Services Costs Up More Than 3% Amid Widespread Labor Shortages; Goods Price Gains Ease Further to 2%
–Core CPI (Ex-Fresh Food) +2.1%, Total CPI +2.4%, Both Slowest Y/Y Rise in 18 Months
–Core-Core CPI (Ex-Fresh Food, Energy) Also Moderates to +3.5% from +3.6%
By Max Sato
(MaceNews) – Consumer inflation in Tokyo, the leading indicator of the national average, eased further in December in line with forecasts as markups in food and beverages had already peaked, energy prices are on a downtrend and the recent surge in hotel fees on base-year effects slowed slightly, data from the Ministry of Internal Affairs and Communications released Tuesday showed.
The core CPI (excluding fresh food), which is closely watched by Bank of Japan policymakers, posted an 18-month low of a 2.1% rise on year, slowing from 2.3% in November and 2.7% in October. The year-over-year rise in the total CPI also slipped to an 18-month low of 2.4% after easing to 2.7% (revised from 2.6%) in November from 3.2% in October.
The core-core CPI (excluding fresh food and energy) annual rate eased to a nine-month low of 3.5% from 3.6% in November.
In its quarterly Outlook Report released in October, the BOJ board revised up its forecast for inflation for the current fiscal year further and jacked up its projection for fiscal 2024. It still sees inflation below its 2% target in fiscal 2025 ending March 2026. The bank will provide updates on its medium-terms growth and inflation projections as well as risk analysis later this month.
At its Jan. 22-23 meeting, the BOJ board is expected to retain its guidance that it will “patiently continue with monetary easing” in order to “achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases.” To this effect, it is likely to keep the targets of minus 0.1 percent for the short-term policy rate and “around zero percent” for the 10-year bond yield.
Board members argued that they should wait until next spring (from March to May) to confirm whether annual labor talks will lead to a substantial wage hike for the second fiscal year in a row before considering lifting the negative short-term interest rate target or ending the yield curve control framework, according to the summary of opinions expressed at the Dec. 18-19 meeting released last month.
Governor Kazuo Ueda told a post-meeting news conference on Dec. 19 that he believed the certainty of the board’s outlook that the underlying inflation rate would increase gradually toward achieving the price stability through fiscal 2025 “continues to rise gradually” but also said the board “still needs to closely monitor whether a virtuous cycle between wages and prices will intensify.”
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards rose 2.1% on year in December in line with the median economist forecast of a 2.1% rise (forecasts ranged from 2.0% to 2.3% gains). It is the 28th straight year-over-year rise but the slowest since the 2.1% rise in June 2022. It followed increases of 2.3% in November, 2.7% in October and 2.5% in September. It eased sharply to 3.2% in February from 4.3% in January as the effects of government subsidies for electricity and natural gas utilities kicked in.
* For the whole of 2023, the core CPI rose by a 41-year high of 3.0% from 2022, when it climbed 2.2% after edging down 0.1% in 2021 and being flat in 2020. It was the fastest pace of increase since the 3.3% rise in 1982.
* The surge in January 2023 is the fastest in more than 41 years, since 4.3% in May 1981, with or without the direct impact of the sales tax hikes in 2014 and 1997 and the introduction of the tax in April 1989. Even during the 12-month period of being boosted by a sharp sales tax hike to 8% from 5% in April 2014, the core CPI peaked at a 2.8% rise. The sales tax is currently at 10% after another rise in 2019.
* The prices of goods excluding fresh food rose 2.0% from a year earlier in December, pushing up the Tokyo area total CPI by 0.82 percentage points, with the pace of increase slowing further from a 2.3% rise (a positive 0.98-point contribution) in November and a 3.4% gain (plus 1.41 points) in October. The prices of services excluding owners’ equivalent rent gained 3.3% on the year, adding 1.16 points to the CPI, decelerating from a 3.6% rise (plus 1.25 points) in November but similar to a 3.3% rise (plus 1.15 points) in October. The uptrend in services costs reflects moves among many firms to raise wages at the fastest pace in 30 years to secure workers.
* The core-core CPI (excluding fresh food and energy) — a key indicator of the underlying trend of inflation — rose 3.5% on the year in December for the 21st straight rise, as expected. The median forecast of a 3.5% rise (forecasts ranged from 3.2% to 3.6%). It remained the slowest gain since the 3.4% rise in March 2023 and followed increases of 3.6% in November, 3.8% in October, 3.9% in September, 4.0% in August and in July. The index rose 3.7% in 2023, the highest since the 4.5% increase in 1981, after rising 1.0% in 2022 and falling 0.3% in 2021.
* The 4.0% gain in the narrow core in the summer of 2023 is the highest in 41 years, since the 4.2% rise in April 1982. This measure is not affected by fluctuations in energy prices and was on an uptrend from April 2022 though mid-2023 in the face of markups in processed food and durable goods as well as rising services costs.
* The total CPI rose 2.4% on year in December, marking the 28th straight year-over-year gain but easing from 2.7% in November and 3.2% increase in October. It was the slowest pace since the 2.3% gain in June 2022. It was in line the median forecast of a 2.4% rise (forecasts ranged from 2.4% to 2.7% gains). The annual rate fell to 3.4% in February from 4.4% in January 2023, which is the largest increase in more than 41 years, since the 4.8% gain in June 1981. In 2023, the total CPI rose 3.2% (the highest since the 4.7% rise in 1981) after rising 2.5% in 2022 and falling 0.2% in 2021.
* Fresh food prices, a volatile factor, rose 9.6% on year in December, pushing up the overall index by 0.38 percentage point. The pace of increase decelerated slightly from a 10.2% rise and a 0.41-point contribution the previous month.
* The prices for both fresh and processed food and beverages — ranging from vegetables, meat and milk to buns, puddings and fried chicken (eating out) — continued pushing consumer inflation higher from year-earlier levels as many firms had raised prices to reflect higher costs seen earlier. Among daily necessities, the prices of toilet paper were 18.5% above year-earlier levels.
* Food excluding perishables rose 6.0% on year (a 1.34-point contribution to the total CPI) in December, easing further from a 6.4% rise in October with a 1.42-point contribution. This category replaced energy as the largest contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points).
* Energy prices fell 18.8% on year in December, pushing down the total index by 1.16 percentage points, with the pace of decrease accelerating further from a 16.7% fall (minus 1.01 points) in November.
* In the energy category, gasoline prices rose 4.1% on the year with a positive 0.02-point contribution to the total CPI in December, little changed from a 4.2% rise (plus 0.03 point) in November. Retail regular gasoline prices hit record highs from late August to early September as the government scaled back subsides to refineries. In the latest development, the national average price eased for the ninth straight week to Dec. 25. The monthly survey on the Tokyo CPI was conducted in mid-December.
* Electricity charges fell 21.7% on the year (minus 0.74 point) in December after dipping 20.1% (minus 0.68 point) the previous month. The prices for natural gas supplied to homes slid 21.9% (minus 0.45 point) after dipping 18.4% (minus 0.36 point) the previous month. To help ease the pain of high costs for daily necessities, the government has been providing subsidies for electricity and natural gas since January 2023 (reflected in February bills onward). The program was scheduled to end in September but the government has extended it until April 2024.
* The prices for household durable goods rose a slight 0.4% with zero contribution to the total CPI in December after posting their first year-on-year decrease in 20 months in November, down 1.4% with a negative 0.02-point contribution and rising 2.7% (plus 0.03 point) in October.
* Accommodations costs jumped 59.0% on the year with a positive 0.53-point contribution to the total CPI in December after surging 62.9% (plus 0.56 points) in November and rising 42.6% (plus 0.43 point) in October. The recent surge was in reaction to a 15.3% drop (minus 0.18 point) in December 2022 and a 16.6% slump in hotel fees (mins 0.19 point) seen in November 2022, a month after the government began subsidizing domestic travel under a new nationwide program, lowering the costs for tourism.
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The second paragraph’s number for total Tokyo CPI was corrected to 2.4% at 1:05p ET Tuesday.
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