–Total CPI +2.8% Y/Y, Also Up from 22-Month Low of 2.2% in January
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases to 13-Month Low of 3.2%
–Services Costs +3.1% Y/Y (+3.2% in January) Amid Wage Hikes Vs. Goods Prices +3.4%, Up from January’s +1.9% Due to Smaller Drop in Utilities
By Max Sato
(MaceNews) – Consumer inflation in Japan accelerated in two key measures in February as the base-year effect of utility subsidies had run its course and after an influx of Asian visitors during their lunar new year holidays had pushed up hotel fees, offsetting the impact of a continued slowdown in processed food price hikes, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core CPI (excluding fresh food prices), closely watched by the Bank of Japan for its policy stance, rose 2.8% on year, touching a four-month high and coming in as expected, after easing to a 22-month low of 2.0% in January. The year-over-year increase in the total CPI climbed to a three-month high of 2.8% after moderating to a 22-month low of 2.2%. It was just below the median forecast of a 2.9% gain.
By contrast, underlying inflation measured by the core-core CPI (excluding fresh food and energy) decelerated to a 13-month low of 3.2% from 3.5%, slightly below the median forecast of a 3.3% rise. The annual rate for this narrow indicator has been at or above 3.0% since December 2022.
Service costs have played catch-up in recent months as firms have been raising wages to secure workers amid widespread labor shortages but goods prices jumped last month due to a much smaller drop in utility charges. Service prices excluding owners’ equivalent rent rose 3.1% on the year in February, pushing up the total CPI by 0.99 percentage point, following a 3.2% rise (plus 1.00 point) in January. Goods prices excluding fresh food gained 3.4% (plus 1.66 points), after a 1.9% increase (plus 0.93 point).
At its March 18-19 meeting, the Bank of Japan’s nine-member board decided in a majority vote to end its seven-year-old yield curve control framework and lift the minus 0.1 percent overnight interest rate target to a range of zero to 0.1 percent from minus 0.1 percent, its first rate hike in 17 years. Many board members believe that the risk of Japan’s economy slipping back into deflation has been reduced and inflation is likely to be led by sustained wage hikes, instead of a spike in import costs, following news last week that wage hikes for fiscal 2024 that begins next month are set to well surpass the pace of increase seen in the previous year.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.8% from a year earlier in February in line with the median economist forecast of a 2.8% rise (forecasts ranged from 2.7% to 2.9% gains). It is the 30th straight year-over-year increase. The 4.2% rise in January 2023 was a 41-year high, the largest increase since the 4.2% gain in September 1981.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 3.2% on the year in February for the 23rd straight year-over-year increase but the pace of increase was the slowest since the 3.2% gain in January 2023. It was below the median economist forecast of a 3.3% rise (forecasts ranged from 3.2% to 3.3% gains). The 4.3% annual rate recorded in May, July and August 2023 was the largest in 42 years, since the 4.5% increase June 1981.
* The total CPI rose 2.8% on year in February for the 30th consecutive year-over-year increase, coming in lower than the median forecast of a 2.9% rise (forecasts ranged from 2.8% to 2.9% gains). The 4.3% increase in January 2023 was a 41-year high, the largest since the 4.3% rise in December 1981. Fresh food prices, a volatile factor, rose 2.5% on year and pushed up the overall index by 0.11 percentage point after rising 4.7% (up 0.20 point) the previous month.
* Among key components of the CPI basket of goods and services, energy prices fell just 1.7 on year in February, pushing down the CPI by 0.14 percentage point, after falling 12.1% with a negative 1.07-point contribution in January. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 4.5% on the year, adding 0.10 percentage point to the CPI following a 4.7% gain (a positive 0.10-point contribution) the previous month. The government has scaled back subsidies to refineries.
* Electricity charges dipped 2.5% on year (a negative 0.09-point contribution) after sliding 21.0% (minus 0.90 point) in the prior month. In February 2023, they marked the first drop since July 2021. The government began providing utilities subsidies in January 2023 (reflected in February bills onward). The program has been extended until April 2024.
* The prices for natural gas supplied to homes fell 13.8% with a negative 0.16-point contribution, after plunging 22.8% (minus 0.30 point) previously.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 32nd straight year-on-year increase but the pace slowed further to 5.3% (plus 1.23 points) in February from 5.9% (plus 1.36 points) in January and down from 9.2% (plus 2.08 points) in August and July 2023, which was the largest increase in more than 46 years since the 9.9% surge in October 1975.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 33.3% on year (plus 0.29 point) in February after rising 26.9% (plus 0.23 point) in January and 59.0% (plus 0.43 point) in December. The surge in late 2023 was in reaction to a slump in hotel fees in late 2022. The government in October that year began subsidizing domestic travel under a new nationwide program to support the pandemic-hit tourism industry.