–Total CPI +3.2% Y/Y Vs. +3.3% in February, 41-Year High of +4.3% in January
–Core-Core CPI (Ex-Fresh Food, Energy) Hits 42-Year High of +3.8% Y/Y, Largest Gain Since +3.9% in December 1981
–Fiscal 2022 Core CPI +3.0% Vs. +0.1% in Fiscal 2021, as Projected by BOJ Board
By Max Sato
(MaceNews) – Consumer inflation in Japan was steady to slightly lower just above 3% in two key measures in March after slowing significantly the previous month from four-decade highs of over 4% in January as expanded subsidies to electricity and natural gas suppliers continued to cap energy costs, data from the Ministry of Internal Affairs and Communication released Friday showed.
But the annual rate of the core-core index (excluding fresh food and energy) accelerated toward 4%, reflecting a widespread move among processed food suppliers to pass last year’s spike in producer and import costs on to customers.
The Bank of Japan’s policy board under the new governor, Kazuo Ueda, is expected to maintain its monetary easing stance at its meeting on April 27-28, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to guide inflation toward the stable 2% target with sustained wage growth.
The Econoday Consensus Divergence Index stands at plus 24, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the index is at plus 30.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.1% from a year earlier in March in line with the median economist forecast for a 3.1% rise. It is the 19th straight year-over-year increase after rising 3.1% in February (the first deceleration in 13 months), 4.2% in January and 4.0% in December.
* The 4.2% rise in January is a 41-year high, the largest increase since the 4.2% gain in September 1981, with or without the direct impact of the sales tax hikes in 2014 (from 5% to 8%) and in 1997 (from 3% to 5%) and the introduction of the sales tax in 1989. The tax was further raised to 10% in 2019 but had only a limited impact on prices.
* Service prices in Japan are subdued due to slow wage hikes but they have moved up in recent months as more companies are providing special allowances to tide over high costs for daily necessities and some firms are raising salaries to secure qualified workers. Service prices excluding owners’ equivalent rent rose 2.2% on the year in March, up from 1.9% in February, 1.7% in January and 1.1% in December. Goods prices, which include fresh food, posted a slower gain of 4.8% in March after rising 5.0% in February.
* In fiscal 2022 that ended last month, the core CPI rose 3.0% after rising 0.1% in the previous fiscal year, falling 0.4% in fiscal 2020 and rising 0.6% in fiscal 2019.
It compared with 3.0%, the median forecast by the Bank of Japan’s nine-member board provided in the bank’s quarterly Outlook Report released in January.
* The board projected that the increase in the core CPI would slow to 1.6% in fiscal 2023 as the base effects of the current spike in energy and commodities prices fade, unchanged from its October forecast. For fiscal 2024, the board expects the core reading to rise 1.8%, noting the impact of government subsidies to cap retail gasoline and utility prices will wane. The latest projections including the first estimate for fiscal 2025 will be released on April 28.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – jumped 3.8% on year in March, recording a fresh 41-year high, after rising 3.5% in February and marking the 12th straight increase. It was above the median economist forecast for a 3.7% rise. The 3.8% rise is the largest since the 3.9% increase December 1981. This narrow measure is without the effects of energy cost fluctuations. It has been pushed up by markups in various items including processed food.
* In fiscal 2022, the core-core CPI gained 2.2% after falling 0.8% in fiscal 2021 and coming in just above the BOJ board projection of a 2.1% rise. The board forecast the narrow measure will slow to 1.8% in fiscal 2023 and 1.6% in fiscal 2024.
* The total CPI rose 3.2% on year in March, marking the 19th consecutive year-over-year increase after rising 3.3% in February and 4.3% in January. It was in line with the median forecast of 3.2%. Fresh food prices, a volatile factor, rose 5.4% on year and pushed up the overall index by 0.22 percentage point after rising 5.8% (up 0.24 point) the previous month. The 4.3% increase January’s total CPI is 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 slumped 3.8% on year in March, pushing down the CPI by 0.32 percentage point, after falling 0.7% with a negative 0.06-point contribution in February (the first drop since March 2021) and rising 14.6% in January with a positive 1.17-point contribution, which was already much slower than the recent peak of a 20.8% rise (+1.46 points) in March 2022. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries. The utilities subsidies that took place in January and were reflected in February bills will continue through September.
* Gasoline prices fell 4.7% on year in March, making a negative 0.11 percentage point contribution to overall consumer prices, after falling 2.5% with a 0.06-point negative contribution in February and rising 0.4% with a 0.14-point positive contribution in January. In November 2022, gasoline prices posted their first year-on-year drop in 21 months, down 1.0% (-0.02 point).
* Electricity charges dropped 8.5% (-0.33 point) in March after falling 5.5% (-0.21 point) in February for the first drop since July 2021 after rising 20.2% (+0.75 point) in January. The year-on-year increase in city gas prices continued slowing to 10.0% (+0.11 point) from 16.6% (+0.17 point) in February and 35.2% (+0.35 point) in January.
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 21st straight year-over-year increase, up 8.2% (+1.85 points) in March after rising 7.8% (+1.76 points) in February. It is the largest increase in more than 46 years, since the 8.6% surge in June 1976. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), meat (domestic pork), snacks, soft drinks, and cooking oil.
* The prices for household durable goods (air conditioners, etc.) marked the 12th consecutive gain from year-earlier levels. The pace of increase decelerated to 9.4% (+0.12 point) in March from 11.2% (+0.14 point) in February.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, pushed up the CPI’s year-on-year increase by 0.05 percentage point in March as its decline has eased amid strong reopening demand. Hotel fees slipped just 0.6% on the year with the a negative 0.1-point contribution in March after falling 6.1% (-0.06 point) in February. They marked their first year-over-year drop in 17 months in October 2022, down 10.0% (-0.09 point). The government launched a new travel discount program in October to support the pandemic-hit tourism industry. It was resumed in January after a brief suspension during the yearend and new year holidays.