–Total CPI Y/Y Rise Also Slows to 22-Month Low of 2.2% But Above Consensus
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases to 11-Month Low of 3.5%
–Resumed Web Scraping Data Collection Causes Spike in Overseas Package Tour Prices, Leading to Slower-Than-Expected CPI Easing
–Services Costs Up 3.2% Y/Y Amid Wage Hikes Vs. Goods Prices +1.9%
By Max Sato
(MaceNews) – Consumer inflation in Japan continued easing in January but not so fast as expected as downward pressures from falling subsided energy costs, smaller processed food markups and hotel fee gains were partly offset by a surge in overseas package tour prices due to a statistical distortion and higher auto insurance premiums, data from the Ministry of Internal Affairs and Communication released Tuesday showed.
The core CPI (excluding fresh food prices), the key measure for the Bank of Japan to assess whether inflation is anchored around its 2% target, rose 2.0% on the year (versus the consensus call of a 1.9% rise). The increase was led by easing but still relatively high processed food prices and rising service costs amid widespread labor shortages. It was the smallest rise in 22 months and followed a 2.3 percent gain in December.
The year-over-year increase in the total CPI also slowed to a 22-month low of 2.2%, after easing to 2.6% in December from 2.8% in November, but it was slightly above the consensus forecast of 2.0%. Underlying inflation measured by the core-core CPI (excluding fresh food and energy) decelerated to an 11-month low of 3.5% from 3.7%, coming in above the median forecast of a 3.3% rise.
Inflation has eased back to the period just before the world felt the full impact of heightened geopolitical risks. Russia’s invasion of Ukraine in late February 2022 triggered a spike in energy and commodities prices in the following months. Global supply chain constraints at the time also boosted import costs for Japan, which was aggravated by the weak yen.
But that shouldn’t stop BOJ policymakers from seeking an exit from the current policy framework. With consumer prices more stable, they can start unwinding large-scale monetary stimulus without causing much disruption this year when they can confirm clearer signs of sustained wage hikes in fiscal 2024 starting in April.
Service costs rose at a faster pace than goods prices for the third month in a row as firms have been raising wages to secure workers amid widespread labor shortages. Service prices excluding owners’ equivalent rent rose 3.2% on the year in January, pushing up the total CPI by 1.00 percentage point, only slightly slower than a 3.3% rise (plus 1.04 points) in December. By contrast, goods prices excluding fresh food gained 1.9% (plus 0.93 points), clearly slowing from a 2.3% increase (plus 1.12 points).
Despite easing price pressures, many households have seen their spending power eroded by inflation, another reason to justify a slight BOJ rate hike. The pickup in nominal wages continued for two years in December but real wages fell on the year for the 21st straight month.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.0% from a year earlier in January, coming in slightly above the median economist forecast of a 1.9% rise (forecasts ranged from 1.7% to 2.0% gains). It is the 29th straight year-over-year increase but the slowest since a 0.8% rise in March 2022. 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 3.5% on the year in January for the 22nd straight year-over-year increase but the pace of increase was the slowest since the 3.5% gain in February 2023. It was also above the median economist forecast of a 3.3% rise (forecasts ranged from 3.3% to 3.6% 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 2.2% on year in January for the 29th consecutive year-over-year increase, coming in higher than the median forecast of a 2.0% rise (forecasts ranged from 1.8% to 2.2% gains). It was still the slowest rise since 1.2% in March 2022. Fresh food prices, a volatile factor, rose 4.7% on year and pushed up the overall index by 0.20 percentage point after surging 9.7% (up 0.39 point) the previous month. The 4.3% increase in January 2023 was 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 fell 12.1% on year in January, pushing down the CPI by 1.07 percentage points, after falling 11.6% with a negative 1.02-poing contribution in December. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 4.7% on the year, adding 0.10 percentage point to the CPI in January following a 4.5% gain (a positive 0.10-point contribution) in December. After hitting a record high of ¥186.5 per liter in early September, the national average price retail regular gasoline drifted down until late October and has stayed in a range of ¥173.4 to ¥175.5. The government has scaled back subsides to refineries.
* Electricity charges slumped 21.0% on year (a negative 0.90-point contribution) in January after sliding 20.5% (minus 0.87 point) in December. 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 was originally scheduled to end in September but has been extended until April 2024.
* The prices for natural gas supplied to homes plunged 22.8% with a negative 0.30-point contribution in January, after falling 20.6% (minus 0.26 point) in December and posting their first year-on-year decline in 21 months in June 2023, down 2.8% (minus 0.03 point).
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 31st straight year-on-year increase but the pace slowed further to 5.9% (plus 1.36 points) in January from 6.2% (plus 1.44 points) in December and 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, showed a slower increase, up 26.9% on year (plus 0.23-point contribution) in January, after rising 59.0% (plus 0.43 point) in December and 62.9% (plus 0.45 point) in November. The surge in those months 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.
* Consumer prices also received a slight downward pressure from landline telephone charges, which fell 12.0% on year in January with a negative 0.06-point contribution after being flat in December. Major carriers unified landline fees across the country, effective Jan. 1, resulting in lower prices for long-distance calls.
* Those downward pressures on the CPI were partly offset by an upward swing in some fresh factors. The prices for overseas package tours jumped 62.9% on year in January, pushing up the CPI by 0.15 percentage point, after being unchanged in December. Auto insurance premiums posted a 4.3% gain (plus 0.08 point) in January following a 0.6% dip (minus 0.01 point) the previous month as inflation has raised repair costs and traveling without Covid restrictions have led to a rise in traffic accidents.
* The surge in overseas package tours is due to a statistical distortion. Effective last month, the ministry resumed reflecting pricing data collected through its web scraping method for this category, which had been suspected since January 2021. “This means the January 2024 data reflects three years of price changes,” a ministry official told Mace News. The pandemic prevented many Japanese from traveling freely to other countries for more than three years. After the government widely lifted its Covid public health restrictions in May 2023, the ministry resumed scraping prices for overseas trips packaged by Japanese travel agencies but waited until January 2024 to ensure data collection is smooth, the official said.
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