Japan Nov Core CPI Posts Solid Gain Amid Rising Energy, Processed Food Costs 

— Core, Total CPI Measures Mark 3rd Straight Y/Y Gains on Tight Supply

— Core-Core CPI (Excluding Fresh Food, Energy) Down For 8th Month in A Row

By Max Sato

(MaceNews) – Consumer prices in Japan picked up their pace of year-on-year increase in November, led by rising utilities, fuels and processed food costs amid global reopening demand and supply constraints, data from the Ministry of Internal Affairs and Communication released Friday showed.

The base effect of higher property insurance premiums as well as double-digit hotel fee gains in reaction to last year’s subsidized discounts eased the downward pressure from low-cost monthly data plans introduced in April by major mobile phone carriers and additional cheaper plans for low data usage offered in recent months.

Consumer prices are edging closer gradually to the hallway point of the Bank of Japan’s 2% inflation target, although the rising costs of daily necessities could dampen consumer spending, and thus inflation expectations, if wage growth remains subdued.

The median core CPI forecast by the Bank of Japan’s nine-member board is a 0.9% rise for fiscal 2022 starting next April after an expected flat reading in the current fiscal year. The government’s assumption for its robust GDP growth projection of a real 3.2% and a nominal 3.6% in fiscal 2022 is that total CPI will increase 0.9% after an estimated 0.1% drop in fiscal 2021.

The key points from CPI data:

* The national average core consumer price index (excluding fresh food) rose 0.5% from a year earlier in November, coming in firmer than the consensus call of a 0.4% rise. It was the third straight year-on-year increase after edging up 0.1% in October. September’s 0.1% rise was the first in 18 months.

* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – marked the eighth straight drop, down 0.6% on year, after falling 0.7% in October. This narrow measure is not receiving support from the recent pickup in energy markets. 

* The total CPI rose jumped 0.6% in November, above the median economist forecast of a 0.4% rise, after rising 0.1% in October and 0.2% in September, which was the first year-over-year gain in 13 months. Volatile fresh food prices rose 3.1% on year and pushed up the overall index by 0.12 percentage point after falling 1.1% (minus 0.04 point) the previous month.

* Among key components of the CPI basket of goods and services: Energy soared 15.6% y/y (+1.07 percentage point contribution) in November vs. +11.3% (+0.79 point) in October; gasoline +27.1% y/y (+0.48 point) vs. +21.4% (+0.38 point); electricity +10.7% (+0.35 point) vs. +7.7% (+0.25 point); food excluding perishables +1.1% (+0.25 point) vs. +0.7 (+0.17 point).

* The base effect remains at least until March next year: Mobile communications fees plunged 53.6% y/y (minus 1.48 percentage points) in November vs. -53.6% y/y (-1.47 percentage points) in October.

* Household durable goods prices now posted a year-on-year decline after showing smaller gains in recent months: -0.3% y/y (-0.01 point contribution) in November vs. +0.1% (+0.00 point) in October. Demand for electric appliances and furniture is firm but some households have already purchased necessary items for working from home.

* Accommodations continued to show a sharp increase, up 57.6% y/y (+0.34 point contribution) in November vs. +59.1% (+0.35 point) in October. It was in reaction to the launch of the government’s “Go To Travel” program in late July 2020 to subsidize hefty discounts on hotel stays and transportation costs aimed at supporting the pandemic-hit tourism industry. It has been suspended since late December 2020 after wide-spread criticism that the program had triggered a spike in coronavirus infections.