–Total CPI Slows to +3.3% Y/Y from 41-Year High of +4.3% in January, Also as Expected
–Core-Core CPI (Ex-Fresh Food, Energy) Hits 41-Year High of +3.5% Y/Y, Largest Gain Since +3.5% in January 1982
By Max Sato
(MaceNews) – Consumer inflation in Japan slowed significantly to just above 3% in February in two key measures after hitting four-decade highs above 4% in January as the government expanded subsidies to electricity and natural gas suppliers aimed at easing the pain of households hit by falling real wages, data from the Ministry of Internal Affairs and Communication released Friday showed.
While overall energy costs made a negative contribution to the CPI for the first time in nearly two years, many households continued to feel squeezed by rampant markups in food and beverages as companies are trying to reflect last year’s spike in producer and import costs. The utilities subsidies that took place in January and were reflected in February bills will continue through September.
Service prices in Japan have been subdued due to slow wage hikes but they are now showing a slight uptick to a 1.3% rise on the year in February, compared to increases of 1.2% in January and 0.8% in December. Service prices excluding owners’ equivalent rent rose 1.9% in February, up from 1.7% in January and 1.1% in December. Goods prices, which include utilities, rose 5.1% in February, slowing from a 7.2% surge in January.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.1% from a year earlier in February in line with the median economist forecast for a 3.1% rise. It is the 18th straight year-over-year increase after rising 4.2% in January, 4.0% in December and 3.7% in November, but it is also the first deceleration in 13 months since January 2022, when the core measure’s annual rate slowed to 0.2% from 0.5% the previous month. The 0.1% rise in September 2021 was the first increase in 18 months.
* The 4.2% rise in January is a 41-year high, the largest increase since the 4.2% gain in September 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 BOJ’s quarterly Outlook Report released in January showed the median forecast by the nine-member board for the core CPI annual rate was 3.0% for fiscal 2022 ending this month. The average of year-over-year gains in the core reading for the first 11 months of fiscal 2022 is 3.0%, 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.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — jumped to a 41-year high of 3.5% in February from 3.2% in January, 3.0% in December and 2.8% in November, marking the 11th straight increase. It was above with the median economist forecast for a 3.4% rise. The 3.5% rise is the largest since the 3.5% increase January 1982. This narrow measure is not receiving upward pressures from elevated energy prices but has been gradually pushed up by markups in various items.
* As a reference forecast, the BOJ board projected last month that the core-core CPI would rise 2.1% in fiscal 2022 (so far up 2.0%), revised up from its October forecast of 1.8%, and that the increase would slow to 1.8% in fiscal 2023 and 1.6% in fiscal 2024.
* The total CPI rose 3.3% on year in February, as expected, marking the 18th consecutive year-over-year rise and slowing from increases of 4.3% in January, 4.0% in December, 3.8% in November and 3.7% in October. Fresh food prices, a volatile factor, rose 5.8% on year and pushed up the overall index by 0.24 percentage point after rising 7.2% (up 0.30 point) the previous month. The 4.3% increase January’s total CPI is a 41-year high, the largest since the 4.3% rise in December 1981.
* Among key components of the CPI basket of goods and services, energy prices dipped 0.7% on year in February, pushing down the CPI by 0.06 percentage point, after rising 14.6% in January with a positive 1.17-point contribution, which was already much slower than the recent peak of a 20.8% rise (+1.46 points) in March 2022. It was the first year-on-year drop since the 4.5% fall in March 2021. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries.
* Gasoline prices fell 2.5% on year, making a negative 0.06 percentage point contribution to overall consumer prices, after rising a slight 0.4% with a 0.14-point positive contribution in January. In November 2022, gasoline prices posted their first year-on-year drop in 21 months, down 1.0% (-0.02 point).
* Electricity charges dropped 5.5% on year in February (-0.21 point) for the first drop since July 2021 after rising 20.2% (+0.75 point) in January. The year-on-year increase in city gas prices slowed sharply to 16.6% (+0.17 point) from 35.2% (+0.35 point) the previous month.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 20th straight year-over-year increase, up 7.8% (+1.76 points), after rising 7.4% (+1.66 points) in January. It is the largest increase in more than 46 years, since the 7.9% surge in July 1976. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), meat (domestic pork), snacks (chocolate), soft drinks and cooking oil.
* The prices for household durable goods (refrigerators, etc.) marked the 11th consecutive gain from year-earlier levels. The pace of increase has remained just above 10% in recent months, at 11.2% (+0.14 point) in February, 1.1% (+0.14 point) in January and 10.8% (+0.14 point) in December.
* Accommodations fees, which have a relatively small weight in the CPI basket of goods and services, fell 6.1% on the year with a slight negative 0.06-point contribution in January after falling 3.0% (-0.03 point) in January and 18.8% (-0.18 point) in December. Hotel fees marked their first year-over-year drop in 17 months in October 2022, down 10.0% (-0.09 point). The government launched a new travel discount program in October to support the pandemic-hit tourism industry.
It was resumed in January after a brief suspension during the yearend and new year holidays.