–Total CPI +2.7% Y/Y, Unexpectedly Slowing from +2.8% in February Despite Higher Fresh Food Price Rise
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases to 16-Month Low of 2.9%
–Services Costs +2.9% Y/Y (+3.1% in February) Amid Wage Hikes Vs. Goods Prices +3.1% (+3.4% Previously)
By Max Sato
(MaceNews) – Consumer inflation in Japan moderated in all three key measures in March in light of easing food and durable goods supplier markups, offsetting the slight upward pressure from a slower pace of decline in energy costs after the base effect of utility subsidies had waned, data from the Ministry of Internal Affairs and Communication released Friday showed.
Hotel fees continued to post a double-digit percentage gain on the year amid a sharp rise in the number of visitors from overseas but their pace of increase has also slowed.
The core CPI (excluding fresh food prices), closely watched by the Bank of Japan for its policy stance, rose 2.6% on year after a 2.8% gain in February, in line with the consensus call of a 2.6% increase. The year-over-year increase in the total CPI unexpectedly eased to 2.7% from 2.8% despite faster fresh food price rises, coming in below the median forecast of a 2.9% rise.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) decelerated to a 16-month low of 2.9% from 3.2%, just below the median forecast of a 3.0% rise. The annual rate for this narrow indicator had been at or above 3.0 percent from December 2022 until February 2024.
Service costs have seen gradual upward pressures as many firms are offering higher wages to secure workers amid widespread labor shortages but goods prices jumped last month due to a much smaller drop in utility charges. Service prices excluding owners’ equivalent rent rose 2.9% on the year in March, pushing up the total CPI by 0.94 percentage point, following a 3.1% rise (plus 0.99 point) in February. It was much higher than the 2.2% rise seen in March 2023. Goods prices excluding fresh food gained 3.1% (plus 1.50 points), after a 3.4% increase (plus 1.66 point) and down from the 4.8% gain posted a year earlier.
The Bank of Japan is expected to maintain its policy stance next week. At its March 18-19 meeting, the bank’s nine-member board decide in a majority vote to end its seven-year-old yield curve control framework and lift the minus 0.1 percent overnight interest rate target to a range of zero to 0.1 percent from minus 0.1 percent, its first rate hike in 17 years, as part of its gradual process of normalizing monetary policy. Subsequent rate hikes are expected to be at a slow pace as policymakers wish to ensure that Japan will not slip back into deflation.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.6% from a year earlier in March for the 31st year-on-year increase, easing from February’s 2.8% gain and coming in as expected (forecasts ranged from 2.6% to 2.7% gains). 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 2.9% on the year in March for the 24th straight year-over-year increase but the pace of increase was the slowest since the 2.8% gain in November 2022. It was below the median economist forecast of a 3.0% rise (forecasts ranged from 2.9% to 3.0% 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.
* In fiscal 2023, the core-core CPI jumped 3.9% after rising 2.2% in fiscal 2022 and falling 0.8% in fiscal 2021, coming in just above the BOJ board projection of a 3.8% rise. The board forecast the narrow measure will slow to 1.9% in fiscal 2024 and stayed at the level in fiscal 2025.
* The total CPI rose 2.7% on year in March for the 31st consecutive year-over-year increase, coming in lower than the median forecast of a 2.9% rise (forecasts ranged from 2.8% to 2.9% gains) and after accelerating to 2.8% in February from 2.2% in January. 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 5.5% on year and pushed up the overall index by 0.23 percentage point after rising 2.5% (up 0.11 point) the previous month.
* In fiscal 2023, the total CPI rose 3.0% after rising 3.2% in the previous year, edging up 0.1% in fiscal 2021, falling 0.2% in fiscal 2020 and rising 0.5% in fiscal 2019. It showed a similar pattern to the core reading’s fluctuations.
* Among key components of the CPI basket of goods and services, energy prices fell just 0.6% on year in March, pushing down the CPI by 0.04 percentage point, after falling 1.7% with a negative 0.14-piont contribution in February and a 12.1% drop (minus 1.07 points) in January. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 4.3% on the year, adding 0.09 percentage point to the CPI following a 4.5% gain (a positive 0.10-point contribution) the previous month. The government has scaled back subsides to refineries.
* Electricity charges dipped 1.0% on year (a negative 0.03-point contribution) after sliding 2.5% (minus 0.09 point) in February and falling 21.0% (minus 0.90 point) in January. 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 has been extended until April 2024.
* The prices for natural gas supplied to homes fell 10.1% with a negative 0.12-point contribution, after falling 13.8% (minus 0.16 point) in February and plunging 22.8% (minus 0.30 point) previously.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 33rd straight year-on-year increase but the pace slowed further to 4.6% (plus 1.09 points) in March from 5.3% (plus 1.23 points) in February and 5.9% (plus 1.36 points) in January and down 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, rose 27.7% on year (plus 0.25 point) in March after rising
33.3% (plus 0.29 point) in February, 26.9% (plus 0.23 point) in January and 59.0% (plus 0.43 point) in December. The surge in late 2023 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.