— Overall Energy Costs Up; Pace of Gasoline Markup Eases Slightly
— Total CPI Posts 1st Y/Y Gain in 13 Months on Rebound in Fresh Food
— Downward Pressure From Low Cost Mobile Phone Plans Lingers
By Max Sato
(MaceNews) – Global supply chain disruptions and reopening demand led energy and processed food costs to rise further, lifting Japan’s sluggish core consumer prices to post the first year-on-year rise in 18 months in September in a gradual recovery against the downward pressure from government-led discounts on mobile phone plans, data from the Ministry of Internal Affairs and Communication released Friday showed.
The pace of gasoline price increases continued decelerating after surging earlier this year but overall energy prices rose more sharply in light of higher electricity charges and a smaller drop in city gas prices. The downward pressure from low-cost monthly data plans introduced in April by major mobile phone carriers intensified in August and continued in September after a major carrier added a new, cheaper plan for low data usage in July.
Accommodations costs still showed a double-digit percentage increase from a year earlier, when the government program to support the pandemic-hit tourism industry by subsidizing discounts pushed down hotel fees and train fares, but the pace of increase decelerated in September.
The key points from CPI data:
- The national average core consumer price index (excluding fresh food) edged up 0.1% from a year earlier in September, as expected, after being unchanged in August. It was the first year-over-year gain since March 2020, when the core reading gained 0.4%.
- The underlying inflation rate – measured by the core-core CPI (excluding fresh food and energy) – marked the sixth straight drop, down 0.5% on year, after falling at the same rate in August. This narrow measure is not receiving support from the recent pickup in energy markets.
- The total CPI rebounded 0.2% in September, showing the first year-over-year gain in 13 months after falling 0.4% through August. Volatile fresh food prices (lettuce, etc.) rose 2.2% on year and pushed up the overall index by 0.09 percentage point after plunging 8.8% (minus 0.38 point) the previous month.
- Among key components of the CPI basket of goods and services: Energy +7.4% y/y (+0.52 percentage point contribution) in September vs. +5.5% (+0.39 point) in August; gasoline +16.5% y/y (+0.30 point) vs. +16.9% (+0.31 point); electricity +4.1% (+0.14 point) vs. +0.9% (+0.03 point); food excluding perishables +0.6% (+0.14 point) vs. +0.3 (+0.07 point).
- The base effect remains until March next year: Mobile communications fees fell 44.8% y/y (minus 1.23 percentage points) in September vs. -44.8% y/y (-1.23 points) in August.
- Household durable goods prices lost some steam after rising at a faster pace earlier: +3.0% y/y (+0.04 point contribution) in September vs. +5.3% (+0.07 point) in August. Demand for electric appliances and furniture is generally firm but some households appear to have already purchased necessary items for working from home.
- Accommodations +43.1% y/y (+0.28 point) in September vs. +46.6% (+0.33 point) in August. The recent sharp increase was in reaction to the launch of the government’s “Go To Travel” program in late July 2020 to subsidize hefty discounts on hotel stays and transportation costs aimed at supporting the tourism industry. It has been suspended since late December amid criticism that it had caused a spike in coronavirus cases.
Inflation Poses Risk to Consumption
The current gradual pickup in Japanese consumer prices has been largely led by higher costs for energy and processed food, reflecting rising oil and gas prices in international markets and pandemic-caused supply chain disruptions.
Japanese households and businesses are also paying higher import prices as the yen has depreciated against the dollar.
If this trend continues, Japan’s growth prospects will become even dimmer as some firms cannot fully pass higher costs on to customers and households may see their disposable incomes slide with no signs of sufficient wage recovery.
Economists on average forecast GDP growth would slow down to just 1% at an annualized rate in July-September (data due on Nov. 15), revised down from 1.36% projected last month, according to the latest monthly ESP Survey of 37 forecasters conducted by the Japan Center for Economic Research from Sept. 27 to Oct. 4.
The average real GDP forecast for fiscal 2021 ending next March was also revised down to 2.76% from 2.87% previously. The economists polled projected the decline in the core CPI to ease to -0.1% in the current fiscal year from -0.4% in fiscal 2020, and expects the core measure to rise 0.51% in the next fiscal year.
In the face of worsening supply-chain constraints and the drag from a resurgence in Covid-19 cases in some countries, the Bank of Japan board is expected to lower its median growth and inflation forecasts in the quarterly Economic Outlook to be issued after the next policy meeting on Oct. 27-28. In July, the board projected real GDP would grow 3.8% in fiscal 2021 ending next March and core CPI would rise 0.6%.
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Contact this reporter: max@macenews.com
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