Japan October Producer Inflation Eases Further to 0.8% from September’s 2.2% on Utility Subsidies, Slowing Global Demand 

–October’s 0.8% Y/Y Rise Lowest Since 0.9% Drop in February 2021

–Producer Prices Unexpectedly Dip 0.4% M/M for 2nd Straight Dop on Lower Cost for Fuels, Meat, Chemicals

By Max Sato

(MaceNews) Producer inflation in Japan eased for the 10th straight month in October, slowing to a weaker-than-expected 0.8% rise on the year, as the government reinforced subsidies to cap utility costs and weaker global demand, particularly from China, weighed on commodities markets, data released Monday by the Bank of Japan showed.

Corporate goods prices unexpectedly slipped 0.4% on the month for a second straight drop on a pullback in fuel costs and lower prices for meat and chemical products, offsetting slight gains in natural gas and alcoholic drinks.

The data also showed business import prices posted the seventh straight year-over-year decline, which is expected to be reflected in consumer prices months ahead.

The key points of CGPI:

* The corporate goods price index (CGPI) rose 0.8% on the year in October, below the median economist forecast of a 1.1% rise (forecasts ranged from 0.9% to 1.4% gains). It is the 32nd consecutive gain but the weakest since the 0.4% drop seen in February 2021, following increases of 2.2% (revised up from 2.0%) in September, 3.4% (revised from 3.3%) in August, 3.6% (revised from 3.5%) in July, 4.1% in June, 5.1% in May, 5.8% in April in April, 7.4% in March, 8.3% in February and 9.5% in January.

* The 10.6% jump in December 2022 remains the highest in 42 years, since November 1980, when the index rose 11.8 percent during the 14-month period of double-digit percentage gains through December 1980 in the wake of the 1979 oil crisis triggered by the Iranian Revolution.

* On the month, the domestic CGPI fell 0.4% in September after falling 0.2% (revised up from a 0.3% drop) in September, rising 0.3% in August and 0.3% (revised from a 0.2% rise) in July and falling 0.1% in June and 0.7% in May. It has eased from the recent peak of a 1.6% rise hit in April 2022. The latest figure is much weaker than the median economist forecast of a 0.1% rise (forecasts ranged from a 0.1% drop to a 0.4% gain). The decrease was led by a pullback in fuels (gasoline, diesel and heavy fuels) and lower prices for meat (pork, beef and chicken eggs) and chemicals (catalyst, xylene and benzene). There were slight gains in the prices for natural gas and food and beverages (the tax rates on sparkling alcoholic beverage ‘happo-shu’ and near-beer were raised).

* The yen depreciated further to an average¥149.53 to the dollar in October from ¥147.67 in September, ¥144.77 in August and ¥141.21 in July during Tokyo trading hours. It was much weaker than ¥130.20 in January. The appreciation of the yen seen earlier this year had helped lower import costs from elevated levels. The dollar briefly surged to a 32-year high of ¥151.94 in October 2022 but Japan’s second wave of massive yen-buying forex intervention pushed it down to a low of ¥143.55 in the same month.  

* The CGPI’s import price index posted the seventh straight decline on the year. In yen terms, the index fell 11.7% in October after dropping a revised 13.9% in September. In contract currencies, the index dipped 12.5% in October after dipping a revised 15.5%. The yen-based price increase peaked at 49.5% in July 2022.

* The producer costs for electric power, gas and water slumped 20.0% on the year in October for the fourth straight drop after falling 17.7% in September and posting double-digit percentage gains earlier. The government has extended its utilities subsidies until yearend. The program aimed at easing the pain of both households and businesses was launched in January and it was originally scheduled to be phased out at the end of September.

* The prices for foods and beverages — a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI — rose 4.9% on the year in October after rising 5.7% in September. Those for transport equipment (150.9 weight) rose 2.6% after a 2.7% gain the previous month.

* Iron and steel prices fell 3.9% after rising 1.1% the previous month. Those for chemicals fell 2.5% following a 2.5% drop. The prices for non-ferrous metals rose 3.9% in October for the fourth straight rise after rising 5.7% in September.

* The prices for petroleum and coal products also posted the fourth increase in a row, up 0.7% on the year in October, but the pace of increase slowed sharply from 3.2% in September. The prices for lumber and wood products plunged 18.5% from a year earlier for the 12th straight drop after falling 20.4% in September.

* The prices for ceramic, stone and clay products eased further to a 12.7% rise on the year in October from a 14.9% gain the previous month. Metal product prices were up 6.1% after rising 7.8%.

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