By Max Sato
–Core CPI +2.1% Y/Y for May, April Largest in Over 13 Years If 2014 Sales Tax Hike Impact Excluded
–Total CPI +2.4% Y/Y for May, April Largest in Over 30 Years Excluding Impact of 2014, 1997 Sales Tax Hikes
–Pace of Energy Price Rise Slower; Household Durable Goods Prices on Uptrend
(MaceNews) – Consumer prices in Japan maintained a relatively high pace of year-on-year increase in May above 2% as supply bottlenecks and global reopening demand continued pushing up the costs for fuels, food and appliances, but the pace of increase in utilities and gasoline slowed, data from the Ministry of Internal Affairs and Communication released Friday showed.
The government has been trying to cap retail gasoline price markups by providing subsidies to refineries, resulting in a smaller contribution of overall energy prices to the CPI. The Bank of Japan has projected inflation will average just under 2% in fiscal 2022 before slipping back to around 1% in the next fiscal year as the impact of surging commodities prices fades and wage growth remains sluggish.
Last week, the bank decided to maintain its super-low interest rate targets along the nearly flat yield curve and large-scale asset purchase program to support economic recovery and lead inflation toward its stable 2% target, staying as a lone wolf while other major central banks are rushing to raise rates to tame inflation.
The key points from CPI data:
- The national average core consumer price index (excluding fresh food) rose 2.1% from a year earlier in May in line with the median economist forecast for a 2.1% rise. It was the ninth straight year-on-year increase after rising 2.1% in April and 0.8% in March. September’s 0.1% rise was the first increase in 18 months.
- The 2.1% rise in May and April is the largest increase since the 2.2% rise in March 2015, but excluding the direct impact of the April 2014 sales tax hike on the March 2015 CPI data (about 2 percentage points), it is the sharpest gain since the 2.3% rise seen in September 2008.
- The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – rose 0.8% on year in April after rising 0.8% in April and falling 0.7% in March. April’s increase was the first in 21 months since the 0.4% rise in 2020 and the largest gain since January 2020, when the index also rose 0.8%. This narrow measure is not receiving support from higher energy markets but is now being propped up by markups in various items.
- The total CPI rose 2.5% on year in May, marking the ninth consecutive year-on-year increase after rising 2.5% in April and 1.2% in March. It was in line with the median economist forecast of a 2.5% increase. September’s 0.2% gain was the first increase in 13 months. Fresh food prices, a volatile factor, rose 12.3% on year and pushed up the overall index by 0.46 percentage point after rising 12.2% (up 0.46 point) the previous month.
- The 2.5% increase is the largest increase since the 2.9% rise in October 2014, but excluding the direct impact of the sales tax hikes in April 2014 (from 5% to 8%) and April 1997 (from 3% to 5%), it was the fastest pace of inflation since the 2.7% surge in December 1991, just after the burst of the asset bubble. Later the sales tax was raised to the current 10% from 8% in October 2019 but its impact on the CPI was smaller than in the past.
- Among key components of the CPI basket of goods and services, the pace of increase in energy prices slowed further to 17.1% on year (+1.26 percentage point contribution) in May from 19.1% (+1.38 points) in April and +20.8% (+1.46 points) in March. The markup in electricity bills eased for the second straight month after having accelerated in recent months, up 18.6% (+0.63 point) vs. 21.0% (+0.69 point) the previous month. The increase in gasoline prices decelerated further to
13.1% (+0.27 point) from 15.7% (+0.32 point) in April and 19.4% (+0.38 point) in March. - The prices for food excluding perishables continued accelerating, up 2.7% (+0.60 point) in May from +2.6% (+0.58 point) in April and +2.0% (+0.44 point) in March.
- Mobile communications fees dipped 22.5% on year (a negative contribution of 0.38 percentage points) in May after falling 22.5% (negative 0.38 point). It was much smaller than the 52.7% fall (-1.42 points) in March because much of the downward pressure from low-cost monthly data plans introduced in April 2021 by major mobile phone carriers and expanded later had faded by April this year.
- Household durable goods prices provided a solid upward contribution to the CPI in May after posting the first year-on-year rise in six months in April. The prices for durable goods, such as air conditioners, rose 7.4% from a year earlier, pushing up the total CPI by 0.10 percentage point, as high temperatures and humidity hit many parts of Japan during the rainy season and supply delays have been pushing up the prices for various electronic appliances. It followed a 5.0% rise (+0.07 point) in April and a 0.4% (-0.01 point) drop in March.
- Accommodations costs rose 5.2% on year (+0.05 contribution) in May after rising 6.1% (+0.06 point) in April. People are traveling more freely after the government eased Covid restrictions in late March. Double-digit percentage gains seen in the second half of calendar 2021 including the 44.0% rise in December (+2.29 point) were in reaction to sharp drops seen a year before.
- The CPI may come under some downward pressure again from the prices for hotels and train fares as the government is considering to resume fiscal support to the tourism industry in coming weeks by revamping its controversial ‘Go To Travel’ campaign with subsidies for domestic traveling. The program was suspended in late December 2020 amid a spike in coronavirus cases five months after it was launched.
Contact this reporter: max@macenews.com
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