–Total CPI Y/Y Rise Also Slows to 16-Month Low of 2.8% from 3.3% in October
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases Further to 8-Month Low of 3.8% from 4.0% in October
By Max Sato
(MaceNews) – Consumer inflation in Japan eased in November in all three key measures in line with consensus forecasts as markups in processed food had already peaked and hotel fees jumped in reaction to a subsidized drop a year earlier, after the total and core readings picked up in October, when halved subsidies for electricity and natural gas utilities slowed the sharp drop in energy costs, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core measure (excluding fresh food prices) rose 2.5% on the year, led by easing but still elevated prices for processed food and rising service costs amid labor shortages, after inching up to 2.9% in October from 2.8% in September. The pace of increase was the slowest in 16 months.
The year-over-year increase in the total CPI also slowed to a 16-month low of 2.8% after jumping to 3.3% in October from 3.0% in September, which was caused by a surge in fresh food prices.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) rose 3.8%, decelerating to an eight-month low from 4.0% in October, 4.2% in September and a 42-year high of 4.3% recorded in August, July and May.
In its quarterly Outlook Report for October, the Bank of Japan board revised up its core CPI forecast for fiscal 2023 ending next March further to 2.8% from 2.5% forecast in July, and jacked up its projection for fiscal 2024 to 2.8% from 1.9%. The board’s median forecast for fiscal 2025 is 1.7%, revised up slightly from 1.6%, but that would be still below its 2% inflation target as the pass-through impact of high import costs is set to wane.
At its Dec. 18-19 meeting, the BOJ policy board voted unanimously to maintain its basic monetary easing stance under the seven-year-old yield curve control framework backed by large asset purchases, keeping its long-term interest rate target officially “around zero percent,” with an actual upper limit around 1%, and the target for the overnight rate at minus 0.1%, in a decade-long campaign to achieve stable 2% inflation. The board also retained its guidance that it will “patiently continue with monetary easing” in order to “achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases.”
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.5% from a year earlier in November in line with the median economist forecast of a 2.5% rise (forecasts ranged from 2.5% to 2.6%). It is the 27th straight year-over-year increase but the slowest since a 2.4% rise in July 2022. Previously, the core CPI rose 2.9% in October, 2.8% in September, 3.1% in both August and July and 3.3% in June. The slowdown to 3.3% in February was the first deceleration in 13 months after rising to 4.2% in January from 4.0% the previous month.
* The 4.2% rise in January 2023 was 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.
* As seen in Tokyo CPI data, the leading indicator of the national average, the pace of increase in services costs exceeded that of goods prices in November, although the latter’s contribution to the total CPI is still larger than the former’s. Service prices in Japan have been on the rise in recent months as more firms are raising wages to secure workers but real wages are still more than 2% below year-earlier levels.
* Service prices excluding owners’ equivalent rent rose 3.4% on the year in November, pushing up the total CPI by 1.06 percentage point, after rising 3.1% in October (plus 0.98 point), 2.9% in September and 3.0% in August. Goods prices excluding fresh food gained 2.7% (plus 1.33-point contribution), slowing from 3.6% in October (plus 1.74 points), 3.5% in September and 4.1% in August.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 3.8% on the year in November, following increases of 4.0% in October, 4.2% in September, 4.3% in both August and July, 4.2% in June, 4.3% in May and 4.1% in April. It is the 20th straight year-over-year increase but remains the slowest since the 3.8% gain in March 2023. It was in line with the median economist forecast of a 3.8% rise (forecasts ranged from 3.7% to 3.9%). The 4.3% rise was the largest in 42 years, since the 4.5% increase June 1981. This narrow measure is without the effects of energy cost fluctuations but it had been pushed up by markups in various items including processed food.
* The total CPI rose 2.8% on year in November for the 27th consecutive year-over-year increase following increases of 3.3% in October, 3.0% in September, 3.2% in August and 3.3% in both July and June. It was also in line with the median forecast of a 2.8% rise (forecasts ranged from 2.7% to 2.9% gains) and the slowest rise since 2.6% in July 2022. Fresh food prices, a volatile factor, rose 10.4% on year and pushed up the overall index by 0.43 percentage point after surging 14.1% (up 0.59 point) the previous month. The 4.3% increase in the total CPI in January 2023 was 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 dipped 10.1% on year in November, pushing down the CPI by 0.87 percentage point, after falling 8.7% with a negative 0.75-poing contribution in October. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 3.9% on the year, adding 0.08 percentage point to the CPI in November, after rising 5.0% (a positive 0.11-point contribution) in October and posting their first year-over-year rise in six months in July with a 1.1% gain (plus 0.02 point). Retail gasoline prices in Japan hit record highs from late August to early September, followed by a gradual slowdown and a slight uptick.
* Electricity charges fell 18.1% on year (a negative 0.75-point contribution) in November after sliding 16.8% (minus 0.69 point) in October. In February 2023, they marked the first drop since July 2021. The government began providing utilities subsidies in January (reflected in February bills onward). The program was originally scheduled to end in September but has been extended until April 2024.
* The prices for natural gas supplied to homes slipped 16.8% with a negative 0.20-point contribution in November, after falling 13.8% (minus 0.16 point) in October and posting their first year-over-year decline in 21 months in June 2023, down 2.8% (minus 0.03 point).
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 29th straight year-over-year increase but the pace slowed to 6.7% (plus 1.56 points) in November from 7.6% (plus 1.74 points) in October, 8.8% (plus 2.01 points) in September and 9.2% (plus 2.08 points) in August and July, which was the largest increase in more than 46 years since the 9.9% surge in October 1975. Sharp price hikes were seen among many items including prepared food (curry), eating out (fried chicken) and snacks including ice cream (unusually warm weather lingered), as largely seen in recent months.
* The prices for household durable goods marked their 20th consecutive gain in November. The pace of increase decelerated to 2.6% (plus 0.04-point contribution) from 3.2% (plus 0.05 point) in October after slowing to 1.5% (plus 0.02 point) in September from 3.0% (plus 0.04 point) in August, 6.0% (plus 0.09 point) in July and six months of double-digit percentage gains through February.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, maintained a high pace of increase, up 62.9% on year (plus 0.45-point contribution) in November, after rising 42.6% (plus 0.35 point) in October, 17.9% (plus 0.17 point) in September and 18.1% (plus 0.19 point) in August. The latest surge was in reaction to a 20.0% slump in hotel fees (minus 0.19 point) in November 2022, a month after the government began subsidizing domestic travel under a new nationwide program, lowering the costs for tourism. Hotel costs have risen in recent months as people have been traveling more freely since the government widely eased Covid public health restrictions in May. The number of visitors from other countries has also recovered.