–Total CPI Y/Y Rise Slows to 17-Month Low of 2.6% from 2.8%
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases Further to 10-Month Low of 3.7% from 3.8%
–Services Costs Up 3.3% Y/Y Due to Wage Hikes Vs. Goods Prices Up 2.3%
By Max Sato
(MaceNews) – Consumer inflation in Japan continued easing in December in line with consensus forecasts for all three key measures as food and beverage markups had already peaked, energy prices remain on a downtrend amid slower global demand and utility subsidies, and the recent surge in hotel fees on base-year effects slowed slightly, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core CPI (excluding fresh food prices), the key measure for the Bank of Japan to assess whether inflation is anchored around its 2% target, rose 2.3% on the year, led by easing but still relatively high processed food prices and rising service costs amid widespread labor shortages, after a 2.5% rise in November. The pace of increase is the slowest in 18 months.
The year-over-year increase in the total CPI also slowed to a 17-month low of 2.6% after easing to 2.8% in November from a temporary jump to 3.3% in October.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) decelerated to a 10-month low of 3.7% from 3.8% in November and from a 42-year high of 4.3% seen last summer.
At its Jan. 22-23 meeting, the BOJ board is widely expected to retain 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.” To this effect, it is likely to keep the targets of minus 0.1% for the short-term policy rate and “around zero percent” for the 10-year bond yield for now. Bank officials have said they want to confirm continued wage hikes in fiscal 2024 starting in April and higher services costs that reflect better earnings among smaller firms.
Service prices rose at a faster pace than goods prices for the second month in a row as firms are raising wages to secure workers amid widespread labor shortages but real wages remain below year-earlier levels. Service prices excluding owners’ equivalent rent rose 3.3% on the year in December, pushing up the total CPI by 1.04 percentage points, after rising 3.4% (plus 1.06 points) in November. Goods prices excluding fresh food gained 2.3% (plus 1.12 points), slowing further from a 2.7% increase (plus 1.33 points).
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.3% from a year earlier in December, coming in line with the median economist forecast of a 2.3% rise. It is the 28th straight year-over-year increase but the slowest since a 2.2% rise in June 2022. The 4.2% rise in January 2023 was a 41-year high, the largest increase since the 4.2% gain in September 1981.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 3.7% on the year in December for the 20th straight year-over-year increase but the pace of increase was the slowest since the 3.5% gain in February 2023. It was in line with the median economist forecast of a 3.7% rise. The 4.3% annual rate recorded in May, July and August 2023 was the largest in 42 years, since the 4.5% increase June 1981.
* The total CPI rose 2.6% on year in December for the 28th consecutive year-over-year increase. It was also in line with the median forecast of a 2.6% rise and remains the slowest rise since 2.6% in July 2022. Fresh food prices, a volatile factor, rose 9.7% on year and pushed up the overall index by 0.39 percentage point after rising 10.4% (up 0.43 point) the previous month. The 4.3% increase 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 fell 11.6% on year in December, pushing down the CPI by 1.02 percentage points, after falling 10.1% with a negative 0.87-poing contribution in November. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 4.5% on the year, adding 0.10 percentage point to the CPI in December after rising 3.9% (a positive 0.08-point contribution) in November. Retail gasoline prices in Japan hit record highs from late August to early September, followed by a gradual slowdown and a slight uptick through early January. The government has scaled back subsides to refineries.
* Electricity charges fell 20.5% on year (a negative 0.87-point contribution) in December after sliding 18.1% (minus 0.75 point) in November. In February 2023, they marked the first drop since July 2021. The government began providing utilities subsidies in January 2023 (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 20.6% with a negative 0.26-point contribution in December, after falling 16.8% (minus 0.20 point) in November 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 30th straight year-over-year increase but the pace slowed further to 6.2% (plus 1.44 points) in December from 6.7% (plus 1.56 points) in November and from 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.
* The prices for household durable goods marked their 21st consecutive gain in December, with the pace of increase accelerating to 4.6% (plus 0.06-point contribution) from 2.6% (plus 0.04 point) in November after a recent slowdown.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, maintained a high pace of increase, up 59.0% on year (plus 0.43-point contribution) in November, after rising 62.9% (plus 0.45 points) in November. The recent surge was in reaction to a 20.0% slump in hotel fees (minus 0.19 point) in November 2022 and a 18.8% drop (minus 0.18 point) in December after the government in October that year began subsidizing domestic travel under a new nationwide program.
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