–Total CPI +3.8% Y/Y Highest in 32 Years With or Without Effects of 2014, 1997 Sales Tax Hikes
–Narrow CPI (Ex-Fresh Food, Energy) +2.5% Remain 31-Year High
–Processed Food Price Rise Largest Factor as Overall Energy Moderates
By Max Sato
The depreciation of the yen is adding to already high import costs but the Bank of Japan would not tighten monetary policy just to shore up the yen’s value. Instead, the Ministry of Finance conducted massive currency market intervention in September and October to sell dollars for yen, using its foreign reserves.
BOJ Governor Haruhiko 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 as it expects the base effects of high energy and commodities prices will wane and supply constrains will ease further next year.
The key points from the Tokyo CPI data:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards surged 3.6% in November in line with the median economist forecast of a 3.6% rise. It is the 15th straight year-on-year rise after rising 3.4% in October, 2.8% in September, 2.6% in August, 2.3% in July, 2.1% in June, 1.9% in May and April and posting modest gains of 0.8% in March and 0.5% in February.
* Prices for both fresh and processed food – ranging from fish, vegetables, bread, chocolate, and cooking oil to imported beef, domestic cheese, and hamburgers at restaurants – continued pushing consumer inflation higher. High materials and shipping costs are keeping the prices for furniture around 30% above last year’s levels while prices for heat pumps (air conditioners/heaters) were up more than 10% on high costs of copper and aluminum. Prices for washing machines also jumped over 20%, with the pace of increase accelerating after new models were introduced in September.
* Utilities charges, around 30% above year-earlier levels on high oil and gas prices, remain elevated. Electricity charges had already hit the upper limits set by the government while city gas prices continued climbing. By contrast, gasoline prices posted the first year-on-year drop in nearly two years, reflecting international energy markets. The government has been trying to cap retail gasoline price markups by providing subsidies to refineries.
* The core CPI’s annual rate remains at the fastest pace in four decades, since the 4.2% rise in April 1982, with or without the direct impact of 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.
* The core-core CPI (excluding fresh food and energy) – a key indicator of the underlying trend of inflation – jumped 2.5% on the year in November for the eighth straight rise, above the median forecast of a 2.4% rise. It followed increases of 2.2% in October and 1.7% in September. April’s 0.8% gain was the first year-on-year rise in 13 months. This measure does not receive support from higher energy prices but it has been on an uptrend in the face of markups in other items. With or without the direct impact of the sales tax increases in 2014 and in 1997, the 2.5% gain is the highest in since the 2.5% rise in October 1992.
* The total CPI soared 3.8% on year in November, marking the 15th straight year-on-year gain, also above the median forecast of a 3.6% rise (forecasts ranged from 3.6% to 3.8%). It followed increases of 3.5% in October, 2.8% in September and 2.9% in August. Previously, the overall index gained 2.5% in July, 2.3% in June and 2.4% in both May and April. The 3.8% increase is the largest in 32 years, since the 3.8% gain in November 1990, with or without the direct impact of the sales tax hikes of 2014 and 1997.
* Fresh food prices, a volatile factor, continued rising, up 8.6% on year in November, pushing up the overall index by 0.33 percentage point, after a 7.2% jump and a 0.29-point contribution the previous month.
* Energy prices rose 24.4% on year in November, pushing up the total index by 1.23 percentage points, following a 24.2% rise (+1.20 points) in October. In March, the pace of increase in energy prices had decelerated for the first time during the current year-on-year rise period that began in July 2021.
* In the energy category, gasoline prices fell 0.8% on the year (a negative 0.01-point contribution) in November after rising just 2.0% (+0.01 point) in October and 5.8% (+0.03 point) in September. It was the first drop since the 5.2% fall recorded in February 2021 at the end of a 12-month period of year-on-year declines. Electricity charges gained 26.0% (+0.72 point), easing further from 26.9% (+0.74 point) in October. City gas prices soared 33.0% (+0.51 point) after rising 29.3% (+0.44 point) the previous month.
* Food excluding perishables rose 6.7% (+1.44 points) in November, accelerating further from 5.9% (+1.27 points) in October and 4.5% (+0.96 point) in September. This category replaced energy as the largest contributor to the CPI increase in October (+1.27 points vs. +1.20 points) and the gap between the two widened in November (+1.44 points vs. +1.23 points).
* The prices for household durable goods rose 11.5% and pushed up the CPI by 0.13 point in November after rising 8.7% (+0.10 point) in October and 9.5% (+0.11 point) in September. It was the highest increase since the 13.9% climb seen in May 2019. Durable goods posted the first year-on-year rise in six months in April, when they rose 5.5% and added 0.06 point to the total index, after a 1.1% dip (-0.01 point) in March.
* Accommodations costs slumped 16.6% from a year earlier with a negative 0.19-point contribution in November after falling 10.0% (-0.12 point) in October after increases of 6.6% (+0.08 point) in September and 2.9% (+0.04 point) in August. The government began subsidizing domestic travel under a new nationwide program in October, lowering the costs for tourism, after temporarily providing fiscal support to prefectures that offered hotel discounts to residents. The current program is scheduled to end in late December.
* Mobile communications fees posted the second year-on-year rise, up 1.7% (a positive 0.02-point contribution) in November, following a 1.8% gain (+0.02 point) in October and 18 months of sharp declines including a relatively modest 14.4% drop (-0.17 point) in September and a 52.7% plunge (-1.08 points) in March. In April 2021, major carriers introduced low-cost monthly plans at the request of the government and followed up with more discounts later.
* Prices of mobile phones jumped 20.1% (+0.13 point) in November for the sixth consecutive month of year-on-year increase, with the pace of increase accelerating further from a 16.5% rise (+0.11 point) in October. The weak yen has boosted the costs for importing smartphones.