–Services Costs Now Rising Faster Than Goods Prices Amid Wage Hikes
–Core CPI (Ex-Fresh Food) +2.3% Y/Y Vs. +2.7% in October
–Total CPI +2.6% Vs. +3.2% on Lower Fresh Food Price Rise After October’s Spike
–Core-Core CPI (Ex-Fresh Food, Energy) Moderates to +3.6% from +3.8%
By Max Sato
(MaceNews) – Consumer inflation in Tokyo, the leading indicator of the national average, eased at a faster pace than expected in November as markups in processed food peaked and hotel fees rose in reaction to a subsidized drop a year earlier, following an uptick 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 Communications released Tuesday showed.
The upward pressure from services costs is now higher than that from goods prices, indicating the effects of a spike in energy and commodities prices caused by the pandemic-era global supply chain breakdowns and geopolitical risks are waning.
The core CPI (excluding fresh food), which is closely watched by Bank of Japan policymakers, posted a 17-month low rise of 2.3% on year, slowing from 2.7% in October and 2.5% in September.
The year-over-year rise in the total CPI also slipped back to a 17-month low of 2.6% after rising to 3.3% in October from 2.8% in September.
The core-core CPI (excluding fresh food and energy) annual rate eased to an eight-month low of 3.6% from 3.8% in October, 3.9% in September and a 41-year high of 4.0% hit in August and July.
In its quarterly Outlook Report released in October, the BOJ board revised up its forecast for inflation for the current fiscal year further and jacked up its projection for fiscal 2024. It still sees inflation below its 2% target in fiscal 2025 ending March 2026.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards rose 2.3% on year in November, just below the median economist forecast of a 2.4% rise (forecasts ranged from 2.2% to 2.6% gains). It is the 27th straight year-over-year rise but the slowest since the 2.3% rise in July 2022. It followed increases of 2.7% in October, 2.5% in September, 2.8% in August and 3.0% in July. It eased sharply to 3.2% in February from 4.3% in January as the effects of government subsidies for electricity and natural gas utilities kicked in.
* The surge in January 2023 is the fastest in more than 41 years, since 4.3% in May 1981, with or without the direct impact of the sales tax hikes in 2014 and 1997 and the introduction of the tax in April 1989. Even during the 12-month period of being boosted by a sharp sales tax hike to 8% from 5% in April 2014, the core CPI peaked at a 2.8% rise. The sales tax is currently at 10% after another rise in 2019.
* Prices of goods excluding fresh food rose 2.3% from a year earlier in November, pushing up the Tokyo area total CPI by 0.98 percentage points, with the pace of increase much slower than a 3.4% rise (a positive 1.41-point contribution) in October, when they picked up after a recent slowdown. The prices of services excluding owners’ equivalent rent gained 3.6% on the year, adding 1.24 points to the CPI, accelerating from a 3.3% rise (plus 1.15 points) the previous month. The uptrend in services costs reflects moves among many firms to raise wages at the fastest pace in 30 years to secure workers.
* The core-core CPI (excluding fresh food and energy) — a key indicator of the underlying trend of inflation — rose 3.6% on the year in November for the 20th straight rise, coming in just below the median forecast of a 3.7% rise (forecasts ranged from 3.5% to 3.8%). It was the slowest gain since the 3.4% rise in March 2023 and followed increases of 3.8% in October, 3.9% in September, 4.0% in August and in July and 3.8% in June and 3.0% at the start of the year.
* The 4.0% gain in the narrow core is the highest in 41 years, since the 4.2% rise in April 1982. This measure is not affected by fluctuations in energy prices but it has been on an uptrend in the face of markups in processed food and durable goods as well as rising services costs.
* The total CPI rose 2.6% on year in November, marking the 27th straight year-over-year gain but easing from October’s revised 3.2% increase (the fastest rise since 3.5% in April) to the slowest pace since the 2.5% gain in July 2022. It was well below the median forecast of a 3.0% rise (forecasts ranged from 2.7% to 3.0% gains). Previously, the index rose 2.8% in September (the slowest since 2.8% in September 2022), 2.9% in August and 3.2% in July and June. The annual rate fell to 3.4% in February from 4.4% in January, which is the largest increase in more than 41 years, since the 4.8% gain in June 1981.
* Fresh food prices, a volatile factor, rose 9.4% on year in November, pushing up the overall index by 0.38 percentage point. The pace of increase decelerated from a revised 16.4% spike and a 0.67-point contribution the previous month, and thus helping slow the total CPI increase.
* Prices for both fresh and processed food and beverages — ranging from vegetables, meat and milk to buns, puddings and fried chicken (eating out) — continued pushing consumer inflation higher from year-earlier levels as many firms had raised prices to reflect higher costs seen earlier, although the pace of markups seems to have peaked. Among daily necessities, the prices of toilet paper were still 16.6% above year-earlier levels in November.
* Food excluding perishables rose 6.4% on year (a 1.42-point contribution to the total CPI) in November, easing further from a 7.3% rise in October with a 1.61-point contribution. This category replaced energy as the largest contributor to the CPI increase in October 2022 (1.27 points vs. 1.20 points).
* Energy prices dipped 16.7% on year in November, pushing down the total index by 1.01 percentage points, with the pace of decrease accelerating from a 14.1% fall (minus 0.84 point) in October.
* In the energy category, gasoline prices rose 4.2% on the year with a positive 0.03-point contribution to the total CPI in November, slowing from a 7.4% rise (plus 0.04 point) in October. Retail regular gasoline prices hit record highs from late August to early September as the government scaled back subsides to refineries. Since then, the national average price eased for the seventh straight week to Oct. 23 and was flat for the next two weeks before moving up slightly. The monthly survey on the Tokyo CPI was conducted in mid-November.
* Electricity charges fell 20.1% on the year (minus 0.68 point) in November after dipping 18.6% (minus 0.62 point) the previous month. Prices for natural gas supplied to homes slid 18.4% (minus 0.36 point) after dipping 14.2% (minus 0.27 point) the previous month. To help ease the pain of high costs for daily necessities, the government has been providing subsidies for electricity and natural gas since January 2023 (reflected in February bills onward). The program was scheduled to end in September but the government has extended it through yearend.
* Prices for household durable goods posted their first year-on-year decrease in 20 months in November, down 1.4% with a negative 0.02-point contribution after rising 2.7% (plus 0.03 point) in October and 0.5% (plus 0.01 point) in September.
* Accommodations costs jumped 62.5% on the year with a positive 0.55-point contribution to the total CPI in November after climbing to a revised 42.6% rise (plus 0.43 point) in October from a 17.9% gain (plus 0.21 point) in September. The latest surge was in reaction to a 16.6% slump in hotel fees (mins 0.19 point) seen 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.