–Total CPI Annual Rate Also Slows to 3.2% from 3.5% after Hitting 41-Year High of 4.4% in January
–Narrow CPI (Ex-Fresh Food, Energy) Annual Rate Rises to 3.9% from 3.8%, Staying at 41-Year High
By Max Sato
(MaceNews) – Consumer prices in Tokyo, the leading indicator of the national average, decelerated in May to a 3.2% rise on year from 3.5% in April in both the total CPI and the core measure (excluding fresh food) as gasoline and utilities subsides pushed down energy costs further amid slowing global demand, data from the Ministry of Internal Affairs and Communications released Friday showed.
By contrast, the core-core CPI (excluding fresh food and energy) accelerated to 3.9% from 3.8%, staying at a 41-year high.
Markups in processed food led the above 3% inflation while the year-over-year rise in durable goods slowed in May from April. The reopening of the economy without strict Covid public health rules and eased border control boosted demand for tourism, pushing up accommodation costs.
The government scheme aimed at easing the pain of many households covers a period from January to September this year, which is reflected in utility bills issued in February onward. But the yen has depreciated to around ¥140 to the dollar in recent trading, which is firmer than the ¥150 level seen in October last year but weaker than the year-ago level of ¥128, keeping Japanese imports relatively expensive.
At its latest meeting on April 27-28, the Bank of Japan’s policy board under the new governor, Kazuo Ueda, decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to continue seeking stable 2% inflation and support sustainable wage growth.
The board said in its statement that it will patiently continue with monetary easing “while nimbly responding to developments in economic activity and prices as well as financial conditions,” indicating that it could adjust its yield curve control framework to allow slightly higher interest rates.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards rose 3.2% in May, coming in slightly below the median economist forecast of a 3.3% rise (forecasts ranged from 3.2% to 3.7%). It is the 21st straight year-over-year rise after rising 3.5% in April, 3.2% in March, 3.3% in February and 4.3% in January.
* In January, the core CPI’s annual rate rose at the fastest pace in more than 41 years, since the 4.3% rise in May 1981, with or without the direct impact of the sales tax hikes in 2014 and 1997 and the introduction of the tax in April 1989. Even during the 12-month period of being boosted by a sharp sales tax hike to 8% from 5% in April 2014, the core CPI peaked at a 2.8% rise. The sales tax is currently at 10% after another rise in 2019.
* The prices of goods excluding fresh food rose 5.2% from a year earlier in May, pushing up the Tokyo area total CPI by 2.11 percentage points, with the pace of increase decelerating from 5.8% (a positive 2.36-point contribution) in April. The prices of services excluding owners’ equivalent rent gained 2.7% on the year, adding 0.97 point to the CPI, up slightly from 2.6% (plus 0.92 point) in April. The uptrend reflects moves among many firms to raise wages at a faster pace than in recent years to secure workers.
* The core-core CPI (excluding fresh food and energy) — a key indicator of the underlying trend of inflation — rose 3.9% on the year in May for the 14th straight rise. It was slightly below the median forecast of a 4.0% rise. It followed increases of 3.8% in April, 3.4% in March, 3.1% in February and 3.0% in January. With or without the direct impact of the sales tax increases in 2014 and in 1997, the 3.9% gain in May is the highest in 41 years, since the 4.2% rise in April 1982. This measure is not affected by fluctuations in energy prices but it has been on an uptrend in the face of markups in processed food and durable goods.
* The total CPI gained 3.2% on year in May, marking the 21st straight year-over-year gain and coming in just under the median forecast of a 3.3% rise (forecasts ranged from 3.2% to 3.6%). It followed increases of 3.5% in April, 3.3% in March, 3.4% in February and 4.4% in January. The 4.4% increase in January is the largest in more than 41 years, since the 4.8% gain in June 1981.
* Fresh food prices, a volatile factor, continued rising, up 4.3% on year in May, pushing up the overall index by 0.18 percentage point, but the pace of increase decelerated from a 4.7% rise and a 0.20-point contribution the previous month.
* The prices for both fresh and processed food, ranging from fish, meat, soft drinks, and cooking oil to ice cream, buns and hamburgers, continued pushing consumer inflation higher from year-earlier levels as many firms have been raising prices to reflect higher costs.
* Food excluding perishables rose 8.9% on year (a 1.92-point contribution to the total CPI) in April, after rising the same rate in April. This category replaced energy as the largest contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points) and the gap between the two has widened further as energy prices began to fall.
* Energy prices slumped 8.2% on year in May, pushing down the total index by 0.47 percentage points, after falling 2.6% (minus 0.14 point) in April, rising just 0.3% (plus 0.02 points) in March and 5.3% (plus 0.26 point) in February, easing further from increases over 20% seen earlier.
* In the energy category, gasoline prices dipped 0.4% on the year, making zero contribution to the total CPI in May, after falling 2.6% (a negative 0.02-point contribution) in April. Electricity charges slumped 16.1% (minus 0.50 point) in April after slipping 7.9% (minus 0.24 point) in April. City gas prices rose 1.9% (plus 0.03 point), slowing further from a 6.2% rise (plus 0.11 point) the previous month.
* The prices for household durable goods posted their 14th straight year-on-year increase, up 7.4%, and pushed up the CPI by 0.09 point in May after rising 12.8% (plus 0.15 point) in April.
* Accommodations costs rose 11.5% from a year earlier with a positive 0.14-point contribution in May, accelerating from an 8.1% rise (plus 0.10 point) in April, as strong pent-up demand for spending on services outpaced the downward effect of subsidies. It followed no change in March and a 6.1% drop (minus 0.07 point) in February. The government began subsidizing domestic travel under a new nationwide discount program in October 2022. After a brief suspension during the yearend and new year holidays, it resumed the scheme on a smaller scale.
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