–Total CPI Also Jumps 4.0% Y/Y, Highest in 41 Years With or Without Effects of 2014, 1997 Sales Tax Hikes
–Narrow CPI (Ex-Fresh Food, Energy) +2.7%, 30-Year High, As Expected
By Max Sato
The yen has appreciated in recent trade but remains relatively weak compared to a year ago, eroding Japan’s purchasing power and keeping the costs for importing materials and products high.
The Bank of Japan board is expected to revise up its medium-term inflation forecasts in its quarterly Outlook Report due on January 18 after the bank’s two-day policy meeting, but unlikely to revamp its long-held yield curve control framework until the second five-year term of Governor Haruhiko Kuroda, an advocate for a reflationary policy mix, ends in early April.
At its last meeting on Dec. 19-20, the BOJ policy board decided unanimously to allow the yield on the 10-year Japanese government bonds to rise to 0.5% from 0.25% amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.
At the same time, the board voted unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases in order to support economic recovery from the pandemic-triggered slump and anchor inflation around its 2% price stability target.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards surged 4.0% in December, coming in higher than the median economist forecast of a 3.8% rise. It is the 16th straight year-on-year rise after rising 3.6% in November, 3.4% in October and 2.8% in September.
* The prices for both fresh and processed food, ranging from fish, bread, milk chocolate and cooking oil to imported beef and hamburgers at restaurants, continued pushing consumer inflation higher. High materials and shipping costs are keeping the prices for furniture close to 30% above the previous year’s levels while prices for heat pumps (air conditioners/heaters) were up more than 12% on high costs of copper and aluminum. The prices for washing machines also maintained an increase by more than 20%, with the pace of increase accelerating after new models were introduced in September.
* Utilities charges, around 30% above year-earlier levels on high oil and gas prices, remain elevated. Electricity charges had already hit the upper limits set by the government while city gas prices continued climbing. Gasoline prices posted a slight rebound in December after marking their first year-on-year drop in nearly two years in November, reflecting international energy markets. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries.
* The core CPI’s annual rate remains at the fastest pace in over four decades, since the 4.2% rise in April 1982, 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 core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – jumped 2.7% on the year in December for the ninth straight rise. It was in line with the median forecast of a 2.7% rise. It followed increases of 2.4% (revised down from an initial 2.5%) in November, 2.2% in October and 1.7% in September. April’s 0.8% gain was the first year-on-year rise in 13 months. 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. With or without the direct impact of the sales tax increases in 2014 and in 1997, the 2.7% gain is the highest in more than 30 years, since the 2.8% rise in June 1992.
* The total CPI soared 4.0% on year in December, marking the 16th straight year-on-year gain and just above the median forecast of a 3.9% rise (forecasts ranged from 3.7% to 4.1%). It followed increases of 3.7% (revised down from 3.8%) in November, 3.5% in October and 2.8% in September. The 4.0% increase is the largest in 41 years, since the 4.3% gain in December 1981.
* Fresh food prices, a volatile factor, continued rising, up 4.3% on year in December, pushing up the overall index by 0.17 percentage point, after a revised 7.7% jump and a 0.30-point contribution the previous month.
* Energy prices rose 26.0% on year in December, pushing up the total index by 1.33 percentage points, up from a 24.4% rise (+1.23 points) in November. In March 2022, the pace of increase in energy prices decelerated for the first time during the current year-on-year rise period that began in July 2021.
* In the energy category, gasoline prices rose 1.8% on the year (a positive 0.01-point contribution) in December after falling 0.8% (-0.01 point) in November for the first drop since the 5.2% fall recorded in February 2021 at the end of a 12-month period of year-on-year declines. Electricity charges gained 26.0 (+0.73 point), little changed from a 26.0% rise (+0.72 point) in November. City gas prices soared 36.9% (+0.58 point) after rising 33.0% (+0.51 point) the previous month.
* Food excluding perishables rose 7.5% (+1.60 points) in December, accelerating further from increases of 6.7% (+1.44 points) in November and 5.9% (+1.27 points) in October. This category replaced energy as the largest contributor to the CPI increase in October (+1.27 points vs. +1.20 points) and the gap between the two widened in November (+1.44 points vs. +1.23 points).
* The prices for household durable goods rose 11.0% and pushed up the CPI by 0.12 point in December after rising 11.5% (+0.13 point) in November, which was the highest increase since the 13.9% climb in May 2019. 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.
* Accommodations costs dipped 15.3% from a year earlier with a negative 0.18-point contribution) in December after falling a revised 20.0% (-0.23 point) in November and 10.0% (-0.12 point) in October after rising 6.6% (+0.08 point) in September. The government began subsidizing domestic travel under a new nationwide program in October after temporarily providing fiscal support to prefectures that offered hotel discounts to residents.
* The prices of mobile phones rose 22.1% (+0.14 point) in December for the seventh consecutive month of year-on-year increase, with the pace of increase accelerating further from 20.1% (+0.13 point) in November and 16.5% (+0.11 point) in October. The weak yen has boosted the costs for importing smartphones.
* Following the lead of retailers, taxi companies operating in Tokyo Prefecture’s central 23 wards and adjacent two cities conducted their first price hike in 15 years, effective on Nov. 14, raising their fares by 14.24% and pushing up the charge for the first 1 km to Y500 from Y420. As a result, taxi fares in the Tokyo CPI data rose 14.4% on the year in December, providing a positive 0.04 percentage point, compared to being unchanged in November.