By Max Sato
(MaceNews) – Japanese consumer prices posted a sharper drop in November as energy costs continued falling but a spike in coronavirus cases later in the month appeared to have slowed the use of hefty government-financed discounts on hotel and transport charges, data from the Ministry of Internal Affairs and Communication released Friday showed.
The government has formally decided to put together yet another supplementary budget, a third for the current fiscal year ending in March, to help prop up households and businesses while the public approval rating for the cabinet of Prime Minister Yoshihide Suga is sliding amid growing criticism of his handling of the pandemic.
Suga has been forced to suspend the controversial “Go To Travel’ program launched in July to subsidize part of domestic accommodations and transport costs in light of a renewed surge in coronavirus cases. He has also come under fire for joining a steak dinner with a group of seven people including his close political allies and celebrities while the government’s panel of health experts are urging the public to avoid gatherings of five or more people, according to news reports.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) slumped 0.9% from a year earlier in November, as expected (consensus was also -0.9%), after falling 0.7% in October. The main factor is sliding prices for gasoline, heating oil and utilities amid slower global demand.
* The key price measure is drifting further away from the Bank of Japan’s 2% inflation target, which was adopted in January 2013 as part of the then Prime Minister Shinzo Abe’s reflationary policy mix of massive monetary easing, flexible fiscal spending and promises of deregulation.
* It was the fourth straight year-on-year decline in the core CPI, and the sixth this year, as government-sponsored discounts on accommodations and transportation also put a damper on overall prices. Prime Minster Suga on Monday announced that the government is suspending the program nationwide from Dec. 28 until Jan. 11 in light of a spike in new cases of the pandemic. Critics said that the suspension should have come sooner while hotel operators voiced concerns that they would lose a chunk of business during the year-end and New Year holidays.
* University tuitions continued falling while mobile communications fees and domestic tobacco prices stayed above year-earlier levels.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – fell 0.3% in November after falling 0.2% in October, marking the second y/y drop in a row.
* Total CPI dipped 0.9% on year in November after slipping 0.4%, which was the first y/y decrease in just over four years.
* In the total CPI, energy costs fell 7.6% y/y in November (-5.7% in October), pushing down the indicator by 0.60 percentage point (0.44 point the previous month), while prices for food excluding perishables – another key item in the CPI basket of goods and services – dipped 0.1% y/y with a negative 0.01 percentage-point contribution, reversing recent gains and a slight 0.2% rise in October (+0.05 point). Water and sewage charges rose just 0.1% y/y in November, providing zero contribution to the total measure, compared to +1.9% (+0.03 percentage point contribution) in October.
* Accommodations prices continued to plunge in November, down 34.4% on year and pushing down the total CPI by 0.42 percentage point, but this category’s downward pressure eased slightly from October, when the prices fell 37.1% and trimmed the total reading by 0.45 point. On the upside, household durable goods prices rose 2.1% with a positive 0.02 percentage-point contribution (vs. +0.8%, +0.01 point in October).
BOJ seen staying put
The Bank of Japan will announce the outcome of its policy board meeting at around noon (0300 GMT) on Friday (2200 EST on Thursday). The board is expected to maintain its easy policy stance of providing support to financial markets by keeping the long-term interest rate at around zero percent and the overnight borrowing rate at -0.1%.
The BOJ will release its quarterly Outlook Report after the next two-day policy meeting ending on Jan. 21. In its last report issued in October, the bank repeated its concern that risks to both growth and inflation were “skewed to the downside” and its outlook remained “extremely unclear” amid the lingering impact of the global pandemic.
The latest median forecast for the core CPI (excluding perishables) by the nine-member board is -0.6% for fiscal 2020. Excluding the direct impact of the sales tax hike in October 2019 (+0.5 percentage point) and free education subsidies by the government (-0.4 percentage point), the core CPI reading is projected to fall 0.7% in the current fiscal year.
The median inflation forecast for fiscal 2021 is +0.4% and the forecast for fiscal 2022 is slightly higher at +0.7%.
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Contact this reporter: max@macenews.com.
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