–Total CPI June Y/Y Rise Steady at 2.8%; Fresh Food Prices Still Up 8%
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Creeps Up to 2.2% from 20-Month Low of 2.1% in May
By Max Sato
(MaceNews) – Consumer inflation in Japan inched up in two of the three key measures in June on reduced subsidies for electricity and natural gas supply, following a sharp rise in May, when a hike in renewable energy fees was reflected in utility bills, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core CPI (excluding fresh food prices), closely watched by the Bank of Japan, rose 2.6% on year in June after the pace of increase picked up to 2.5% in May from 2.2% in April, coming in just below the consensus call of a 2.7% increase. The year-over-year increase in the total CPI was steady at 2.8% in June after rising to 2.8% in May from 2.5% in April, also slightly lower than the median forecast of a 2.9% rise.
The core-core CPI (excluding fresh food and energy), a key indicator of underlying inflation, edged up to 2.2%, as expected, after easing to a 20-month low of 2.1% in May from April’s 2.4%. 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 for suppliers of electricity and natural gas aimed at keeping utility costs lower for households that were already hit by elevated costs for food and other essentials.
The program was terminated at the end of June, which will push up energy costs further in the 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.
In the June data, the combined upward pressure from energy and durable goods (0.08 point higher than in May), the latter of which was boosted by a jump in the prices for air conditioners amid hot weather, offset the downward effect of easing processed food markups (0.08 point lower than in May).
Overall energy prices gained 7.7% on year in June, pushing up the CPI by 0.59 percentage point, after rising 7.2% in May with a positive 0.54-point contribution, while the prices for durable goods jumped 3.9% (plus 0.06 point) after a 1.9% rise (plus 0.03 point). By contrast, the increase in food prices excluding perishables continued to ease to 2.8% in June from 3.2% in May but this category remains the largest contributor, raising the CPI by 0.68 point, although it is smaller than plus 0.76 point seen the previous month.
Services costs have lost some steam after having led overall inflation earlier. Large firms are raising wages to secure workers amid labor shortages but some smaller firms cannot afford to catch up and the regulated wages for medical, welfare and education workers remain low, which is keeping underlying inflation tame and thus leaving the BOJ cautious about raising interest rates further.
The bank monitors various price data and anecdotal evidence and makes a “comprehensive” judgement on underlying inflation. Governor Kazuo Ueda has said it is still below the price stability target of 2% but that it “seems to be on a rising path toward 2%.”
Service prices excluding owners’ equivalent rent rose 2.4% on the year in June, pushing up the total CPI by 0.78 percentage point, following a 2.2% rise (plus 0.71 point) in May. Goods prices excluding fresh food gained 3.5% (plus 1.70 points) after a 3.5% rise (plus 1.69 points) in May and a 2.6% gain (plus 1.28 point) in April. Utility costs had marked a hefty increase in May after falling for more than a year.
The BOJ board is expected to cautiously raise the overnight interest rate target, with its next move possibly in September but not in July. At its latest meeting on June 13-14, the nine-member board decided in a unanimous vote to hold the overnight interest rate target steady in a range of 0% to 0.1% for the second straight meeting after conducting its first rate hike in 17 years and ending the seven-year-old yield curve control framework in March.
Other details from CPI data:
* The national average core consumer price index (excluding fresh food) posted the 34th year-on-year increase in June. It has been below 3% since September 2023 and well below the 4.2% surge in January 2023, which was a 41-year high (the largest increase since the 4.2% gain in September 1981).
* The total CPI also showed the 34th consecutive year-on-year increase in June.
The 4.3% increase in January 2023 was a 41-year high, the largest since the 4.3% rise in December 1981. Fresh food prices, a volatile factor, rose 8.0% on year and pushed up the overall index by 0.33 percentage point in June after rising 8.8% (up 0.38 point) the previous month.
* The core-core CPI (excluding fresh food and energy) marked the 27th straight year-over-year increase. The pace of increase picked up slightly after drifting down to 2.1% in May, which was the lowest since 1.8% in September 2022. 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.
* Within the energy category, which accounts for about 7% of the CPI basket of goods and services, gasoline prices rose 3.7% on the year in June, adding 0.08 percentage point to the CPI, slowing from a 4.5% gain (plus 0.09 point) the previous month.
* Electricity charges rose 13.4% on year (plus 0.45 point) after soaring 14.7% (plus 0.47 point) in May and sliding 1.1% (minus 0.04 point) in April. Prices for natural gas supplied to homes rose 3.7% (plus 0.04 point) in June, reversing a 3.2% drop (minus 0.03 point) in May and a 5.9% drop (minus 0.07 point) in April.
* Prices for food excluding perishables, which has a large 22% share in the CPI basket, posted the 36th straight year-on-year increase in June but the pace slowed further to 2.8% (plus 0.68 point) and down sharply from 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.
* Accommodations, which have a small 0.8% share in the CPI basket, rose 19.9% on year (0.19 point) in June, up from 14.7% (plus 0.15 point) in May, as strong inbound spending continues, with the protracted weakness of the yen attracting more visitors from overseas.