–Processed Food Largest Inflation Factor; Energy’s Contribution Shrinks Further on Lower Gasoline
–Core CPI (Ex-Fresh Food) Y/Y Rise Highest Since +4.0% in December 1981
–Core-Core CPI (Ex-Fresh Food, Energy) +2.8% Y/Y, 30-Year High, Matching +2.8% in April 1992
–Total CPI +3.8% Y/Y, Nearly 32-Year High; Largest Since +4.0% in January 1991
By Max Sato
(MaceNews) – Consumer inflation in Japan drifted higher in November after widespread sharp markups in processed food and beverages in October at the start of the second half of fiscal 2022 amid slightly easing but still elevated producer and import costs, boosting the core CPI annual rate to a nearly 41-year high of 3.7%, data from the Ministry of Internal Affairs and Communication released Friday showed.
Rising processed food prices became the largest contributor to inflation in October and its upward pressure intensified in November, but the core reading came in a tad lower than expected as the pace of year-over-year increase in energy costs decelerated further, although utilities charges continued to rise.
Gasoline prices posted a drop after 20 months of increase, reflecting an earlier decline in energy markets and the effects of government subsidies to refineries aimed at capping retail price hikes. Amid sagging public approval ratings, the government of Prime Minister Fumio Kishida also plans to ease the pain of households by providing new subsidies to electricity and natural gas retailers.
At its latest meeting on Dec. 19-20, the Bank of Japan’s policy board decided unanimously to allow the yield on the 10-year Japanese government bonds to rise to 0.5% from the current cap of 0.25% amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime. Governor Haruhiko Kuroda told reporters on Tuesday that this adjustment should not be considered a rate hike.
At the same time, the board voted unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases in order to support economic recovery from the pandemic-triggered slump and anchor inflation around its 2% price stability target.
Kuroda has repeatedly said the bank would not consider raising interest rates while inflation is not accompanied by solid wage growth (real wages are falling) and supply continues to exceed demand in the Japanese economy. The BOJ board has projected inflation is unlikely to be anchored around its 2% target at least for the next few years.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 3.7% from a year earlier in November, coming in slightly lower than the median economist forecast for a 3.8% rise. It is the 15th straight year-over-year increase after rising 3.6% in October, 3.0% in September, 2.8% in August, 2.4% in July, 2.2% in June, 2.1% in both May and April and 0.8% in March. The 0.1% rise in September 2021 was the first increase in 18 months.
* The BOJ’s quarterly Outlook Report released in October showed the median forecast by the nine-member board for the core CPI annual rate was revised up to 2.9% for fiscal 2022 ending next March from 2.3% projected in July. The average of year-over-year gains in the core reading for the first eight months of fiscal 2022 is 2.7%, compared to a 0.1% rise in the full year of fiscal 2021.
* The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – accelerated to 2.8% in November from 2.5% in October and 1.8% in September, marking the eighth straight increase and is now at a more than 30-year high. It was in line with the median economist forecast for a 2.8% rise. The 2.8% rise is the largest since the 2.8% gain in April 1992. This narrow measure is not receiving support from elevated energy prices but has been gradually pushed up by markups in various items.
* As a reference forecast, the BOJ board projected in October that the core-core CPI would rise 1.8% in fiscal 2022 (so far up 1.6%) and a further 1.6% in each of fiscal 2023 and 2024, all revised up from its previous projections in July.
* The total CPI soared 3.8% on year in November, marking the 15th consecutive year-on-year increase after increases of 3.7% in October, 3.0% in September and August, 2.6% in July, 2.4% in June, 2.5% in May and April and 1.2% in March. It came in slightly below the consensus forecast of a 3.9% increase. Fresh food prices, a volatile factor, rose 7.3% on year and pushed up the overall index by 0.29 percentage point after rising 8.1% (up 0.33 point) the previous month.
* The 3.8% increase in total CPI is nearly a 32-year high, the largest since the 4.0% rise in January 1991 just after the burst of the asset bubble.
* Among key components of the CPI basket of goods and services, the pace of year-on-year increase in energy prices decelerated further to 13.3% in November from 15.2% in October and their contribution shrank to 1.06 percentage points from 1.18. The pace has slowed from a recent peak of 20.8% (+1.46 points) in March. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries, resulting in a smaller contribution of overall energy prices to the CPI.
* Gasoline prices posted their first year-on-year drop in 21 months, down 1.0% in November, marking a negative 0.02 percentage point contribution to overall consumer prices. It follows a 2.9% rise (a positive 0.06-point contribution) in October and 15 months of double-digit percentage gains through June.
* Electricity bills rose 20.1% on the year (+0.72 point) in November, slowing further from 20.9% (+0.74 point) in October. The year-on-year increase in city gas prices accelerated to 28.9% (+0.28 point) from 26.8% (+0.26 point) the previous month.
* The prices for food excluding perishables posted the 17th straight year-over-year increase, accelerating further 6.8% (+1.54 points) in November from 5.9% (+1.33 points) in October. It was the largest increase since a 6.9% rise in February 1981. Sharp price hikes were seen among many items including prepared food (fried chicken), eating out (hamburgers), bread, meat (domestic pork) and cooking oil. Many food and beverage producers raised retail prices on Oct. 1 at the start of the second half of fiscal 2022.
* Mobile communications fees jumped 20.1% on the year with a positive 0.17-point contribution in November after posting their first year-on-year gain in 19 months in October, up 1.8% (+0.02 point) and falling 14.4% in September (-0.22 point). The pace of decrease had decelerated in recent months from a 53.6% plunge (-1.48 points) in February. Much of the downward pressure from low-cost monthly data plans introduced in April 2021 by major mobile phone carriers and expanded later had faded by April this year, when the charges fell 22.5% (-0.38 points).
* The prices for household durable goods (air conditioners/heaters, etc.) marked the eighth consecutive gain from year-earlier levels. The pace of increase eased to 10.7% (+0.15 point) in November from 11.8% in October (+0.16 point).
* Property insurance premiums rose 11.2% (+0.09 point) in November, up from increase of 10.2% (+0.08 point) in October and 1.0% in September (+0.01 point).
* Accommodations charges slumped 20.0% on the year with a negative 0.19-point contribution to the CPI in November, after marking their first year-on-year drop in 17 months in October, down 10.0% (-0.09 point) and rising 6.6% (+0.06 point) in September. The downward pressure from the prices for hotels has been negligible. The government began subsidizing domestic travel under a new nationwide program in October. Its previous, controversial ‘Go To Travel’ campaign was suspended in late December 2020 amid a spike in coronavirus cases five months after it was launched.