–Total CPI Annual Rate Also Slows to 3.4%% after Hitting Over 41-Year High of 4.4% in January
–Narrow CPI (Ex-Fresh Food, Energy) Annual Rate Rises to 3.2%, More Than 31-Year High
By Max Sato
(MaceNews) – Consumer prices in Tokyo, the leading indicator of the national average, posted year-on-year gains of above 3% in February in two key measures, slowing significantly from four-decade highs of over 4% in January, thanks to the government’s new program to provide subsidies to consumer electricity and natural gas suppliers, data from the Ministry of Internal Affairs and Communications released Friday showed.
The government scheme aimed at easing the pain of many households covers a period from January to September this year, which is reflected in utility bills issued in February onward. The yen remains relatively weak compared to year-earlier levels, limiting Japan’s purchasing power and keeping the costs for importing materials and products high.
The Bank of Japan is unlikely to make a drastic change to its yield curve control policy framework for now as stable 2% inflation with sustained wage growth and economic growth is unlikely to be achieved soon. The focus is on how the central bank and the government will review their 10-year-old policy coordination accord that called for a 2% inflation target after the new BOJ governor takes office in April.
The prices of goods excluding fresh food rose 6.0% from a year earlier in February, pushing up the Tokyo area total CPI by 2.44 percentage points, with the pace of increase slowing from 8.5% (a positive 3.42-poing contribution) in January. The prices of services excluding owners’ equivalent rent gained 1.9% on the year, adding 0.68 points to the CPI. It is a much slower pace compared to sharp markups in goods, but higher than 1.7% (0.60-point contribution) in January, indicating firms are raising wages to secure workers.
The key points from the Tokyo CPI data:
- The core Consumer Price Index (excluding fresh food) in the capital’s 23 wards rose 3.3% in February, coming in slightly higher than the median economist forecast of a 3.2% rise. It is the 18th straight year-on-year rise after rising 4.3% in January, 3.9% in December, 3.6% in November, 3.4% in October and 2.8% in September.
- In January, the core CPI’s annual rate rose at the fastest pace in more than 41 years, since the 4.3% rise 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 core-core CPI (excluding fresh food and energy) — a key indicator of the underlying trend of inflation — rose 3.2% on the year in February for the 11th straight rise. It was also just above the median forecast of a 3.1% rise. It followed increases of 3.0% in January, 2.7% in December, 2.4% 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 3.2% gain in February is the highest in more than 31 years, since the 3.2% rise in August 1991.
- The total CPI gained 3.4% on year in February, marking the 18th straight year-on-year gain and coming in higher than the median forecast of a 3.3% rise (forecasts ranged from 3.2% to 3.5%). It followed increases of 4.4% in January, 3.9% in December, 3.7% in November, 3.5% in October and 2.8% in September. The 4.4% increase in January is the largest in more than 41 years, since the 4.8% gain in June 1981.
- Fresh food prices, a volatile factor, continued rising, up 5.4% on year in February, pushing up the overall index by 0.22 percentage point, with the pace of increase decelerating from a revised 7.0% rise and a 0.29-point contribution the previous month.
- The prices for both fresh and processed food, ranging from fish, buns, soft drinks, and cooking oil to hamburgers at restaurants and chicken, continued pushing consumer inflation higher from year-earlier levels as many firms have been raising prices to reflect higher costs. More markups are expected in coming months.
- Food excluding perishables rose 7.8% (a 1.68-point contribution to the total CPI) in February, after rising 7.4% (1.60 points) in January, 7.5% (1.60 points) in December, 6.7% (1.44 points) in November. This category replaced energy as the largest contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points) and the gap between the two has widened.
- Energy prices rose just 5.3% on year in February, pushing up the total index by 0.29 percentage points, slowing from gains of 26.0% (1.35 points) in January, 26.0% (1.33 points) in December and 24.4% (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 dipped 2.2% on the year, making a slightly negative 0.01-point contribution to the total CPI in February, after edging up 0.5% (zero contribution) in January, rebounding 1.8% (+0.01 point) in December and falling 0.8% (-0.01 point) in November for the first drop since the 5.2% fall in February 2021. Electricity charges fell 1.7% (-0.05 point) after rising 24.6% (+0.71 point) in January. City gas prices rose 20.4% (+0.34 point) after soaring 39.7% (+0.63 point) the previous month.
- The prices for household durable goods, such as refrigerators, rose 14.4% and pushed up the CPI by 0.16 point in February after rising 10.6% (0.12 point) in January. Durable goods posted the first year-on-year rise in six months in April 2022, when they rose 5.5% and added 0.06 point to the total index.
- Accommodations costs fell 5.7% from a year earlier with a negative 0.07-point contribution) in February after falling 3.0% (-0.03 point) in January and 18.8% (-0.22 point) in December. The government began subsidizing domestic travel under a new nationwide program in October 2022. After a brief suspension during the yearend and new year holidays, it resumed the scheme on smaller scale.
Contact this reporter: max@macenews.com
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