–Total CPI Y/Y Rise Steady at 2.8%; Fresh Food Markups Ease After Recent Spike
–Core-Core CPI (Ex-Fresh Food, Energy) Up 1.9% Vs. 2.2% amid Easing Pressure from Processed Food Costs
By Max Sato
(MaceNews) – Consumer inflation in Japan continued accelerating slightly in the core reading in July after the government ended 18-month long utility subsidies in June for July bills and the killer heatwave drove up air conditioner prices, data from the Ministry of Internal Affairs and Communication released Friday showed, but a similar fiscal support is set to ease inflation for three months, starting with September bill payments.
The core CPI (excluding fresh food prices), closely watched by the Bank of Japan for its policy stance, rose 2.7% on year in July, as expected, after the pace of increase picked up to 2.6% in June from 2.5% in May. The year-over-year increase in the total CPI was steady at 2.8% after rising at the same pace in the previous two months, just below the median forecast of a 2.9% increase. Fresh food price markups eased after a recent spike caused by bad weather in the spring.
At the same time, inflation slowed in one of the three key measures as the upward move in overall energy prices was partly offset by easing markups in processed food as well as slower gains in hotels and mobile phone communications charges.
The core-core CPI (excluding fresh food and energy), a key indicator of underlying inflation, rose 1.9% on year in July, the slowest pace in 22 months, after rising to 2.2% in June from 2.1% in May. The annual rate for this narrow indicator had been at or above 3.0% from December 2022 until February 2024, partly because it didn’t reflect the price-cutting effects of the government subsidies aimed at keeping utility costs lower for households that were already hit by elevated costs for essentials.
The July CPI data is unlikely to change the Bank of Japan’s stance of maintaining its accommodative monetary conditions to support the economy and sustained wage hikes in the policy normalization process of gradually raising the target for overnight interest rates toward 1% from around zero.
In the July data, the combined upward pressure from energy and durable goods, which was 0.33 point higher than in June, was partly offset by the combined downward effect of easing markups in processed food, hotel feels and mobile phone plans, which was 0.23 point lower than the previous month.
Overall energy prices jumped 12.0% on year in July, pushing up the CPI by 0.90 percentage point, after rising 7.7% in June with a positive 0.59-point contribution.
This category is now the largest contributor to overall consumer inflation. The prices for durable goods including air conditioners rose 5.2% (plus 0.08 point) after rising 3.9% (plus 0.06 point).
By contrast, the increase in food prices excluding perishables continued easing to 2.6% (plus 0.63 point) in June from 2.8% in June (plus 0.68 point).
Service prices excluding owners’ equivalent rent rose 1.9% on the year in July, raising the total CPI by 0.60 percentage point, which was lower than the 2.4% increase (plus 0.78 point) in June in light of a nearly flat reading of mobile phone communications charges. Goods prices excluding fresh food gained 4.0% (plus 1.94 points) after the 3.5% rise (plus 1.70 points) in June, led by higher utility costs.
Other details from CPI data:
* Within the energy category, which accounts for about 7% of the CPI basket of goods and services, gasoline prices rose 1.9% on the year in July, adding 0.04 percentage point to the CPI, easing from a 3.7% gain (plus 0.08 point) the previous month.
* Electricity charges rose 22.3% on year (plus 0.73 point), accelerating from a 13.4% rise (plus 0.45 point) in June. The prices for natural gas supplied to homes rose 10.8% (plus 0.11 point), also up sharply from a 3.7% increase (plus 0.04 point) in June.
* The prices for food excluding perishables, which has a large 22% share in the CPI basket, posted the 37th straight year-on-year increase in July but the pace slowed further to 2.6% (plus 0.63 point) from 2.8% (plus 0.68 point) in June and a recent peak of 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.
* The accommodations category, which has a small 0.8% share in the CPI basket, rose 10.3% on year (0.11 point) in July, slowing from a 19.9% rise (0.19 point) in June. Japanese households have trimmed discretionary spending, such as on hotels and transportation. Dangerously high temperatures around 40 degrees Celsius lingered in many cities, putting a damper on some economic activities.