–Total CPI Annual Rate Slows to 2.2% from 2.3% in Light of Smaller Fresh Food Price Rise
–Core-Core CPI (Ex-Fresh Food, Energy) Decelerates to +1.5% from 1.8%
By Max Sato
(MaceNews) – Consumer inflation in Tokyo, the leading indicator of the national average, picked up only slightly in July in the core reading after the government ended utility subsidies, but inflation slowed in two of the three key measures as the upward move in overall energy prices was offset by easing processed food markups and slower gains in hotels and mobile phone communications charges, data from the Ministry of Internal Affairs and Communications released Friday showed.
The core CPI (excluding fresh food), closely watched by the Bank of Japan, posted a 2.2% increase on year, as expected, after the pace of increase rose to 2.1% in June from 1.9% in May in light of higher energy costs caused by reduced subsidies. The slump to a 25-month low of 1.6% in April was caused by a special regional factor: The Tokyo metropolitan government added fiscal support to make high school education completely free in the capital.
The year-over-year rise in the total CPI decelerated to 2.2%, just below the median forecast of 2.3% on a smaller gain in fresh food prices, after accelerating to 2.3% in June from 2.2% in May and 1.8% in April. The core-core CPI (excluding fresh food and energy) annual rate stood at a two-year low of 1.5% (versus the consensus call of 1.6%), slowing from 1.8% in June, when it rose from 1.7 % in May.
Judging from the tame CPI data and falling real wages, the Bank of Japan board is expected to maintain its policy stance at its two-day meeting on July 30-31 and is likely to wait until Sept. 20-21 meeting to follow up on its first rate hike in 17 years in March by raising the overnight interest rate target to 0.25 percent from the current range of zero to 0.1 percent.
Services costs have lost upward momentum in recent months as the regulated wages for medical, welfare and education service workers remain depressed despite the highest overall wage hikes in 33 years for employees at large firms this year.
The prices of services excluding owners’ equivalent rent rose just 0.6% on year in July, contributing 0.20 point to the Tokyo CPI, down from a 1.1% rise (plus 0.38 point) in May. The annual rate of goods prices excluding fresh food accelerated to 4.3% (adding 1.77 points) from 3.7% (plus 1.54 points) in June mainly due to higher utility costs.
The increase in processed food continues easing. This category replaced energy as the largest positive contributor to the CPI increase in October 2022 (plus 1.27 points vs. plus 1.20 points) but in the latest report, its effect has declined to plus 0.60 point (down from plus 0.70 point in June) and it was replaced by energy, which pushed up the index by 0.72 point (up from plus 0.38 point in June).
Other details from the Tokyo CPI data:
* The general slowdown of the core measure began in February 2023, when it eased sharply to 3.3% from a 41-year high of 4.3% in January 2023 as the effects of government subsidies for electricity and natural gas utilities kicked in. The 18-month long program was terminated at the end of June, which pushed up energy costs further in July CPI data. Meantime, the government has decided to revive a similar scheme for three months ending in October when high temperatures are expected to boost the use of air conditioners.
* Fresh food prices, a volatile factor, rose 2.7% on year in July, pushing up the overall index by 0.11 percentage point, slowing from a 7.9% rise and a 0.32-point contribution the previous month. Fresh vegetable prices had surged on poor crops caused by bad weather in April.
* Food excluding perishables, which accounts for 21.4% of the CPI basket of goods and services, rose 2.6 percent on year (a 0.60-point contribution to the total CPI) in July, slowing further from a 3.0% increase in June (plus 0.70 point).
* The prices for energy, which has a smaller 4.7% share in the basket, rose 14.5% on year in July, pushing up the total index by 0.72 percentage point, after rising 7.5% (plus 0.38 point) in June, 5.9% (plus 0.29 point) in May and falling 2.9% in April (minus 0.15 point).
* In the energy category, gasoline prices rose 1.7% on the year with a positive 0.01-point contribution to the CPI, slowing from a 3.4% rise (plus 0.02 point) the previous month.
* Electricity charges jumped 19.7% on the year (plus 0.52 point) after rising 10.8% (plus 0.29 point) in June, 13.1% (plus 0.33 point) in May and slipping 2.1% (minus 0.06 point) in April. The prices for natural gas supplied to homes rose 11.9% (plus 0.19 point) after rising 3.8% (plus 0.06 point) in June and falling 3.9% (minus 0.07 point) in May.
* The prices for household durable goods rose 7.9% with a positive 0.10-point contribution to the CPI in July after rising 7.8% (plus 0.10 point) in June and 4.1% (plus 0.05 point) in May and falling 3.8% (minus 0.05 point) in April. The killer heat wave hit most Japanese regions, boosting demand for air conditioners whose prices rose 23.0% from a year earlier.
* Accommodations costs rose 10.3% on the year with a positive 0.14-point contribution in July, slowing from increases of 19.9% (plus 0.23 point) in June and 14.7% (plus 0.19 point) in May. The surge in hotel fees seen late last year is largely in reaction to a slump that began in late 2022. The government in October that year began subsidizing domestic travel under a new nationwide program, lowering the costs for tourism as part of economic stimulus measures through the first half of 2023 in many regions.
* The year-on-year increase in mobile phone communications charges decelerated to just 0.6% in July (plus 0.01 point) from 8.8% (plus 0.08 point) in June due mainly to the base year effect.