–Total CPI Moderates to 12-Month Low of 3.0% Rise; Durable Goods Price Gain Slows Further
–Core-Core CPI (Ex-Fresh Food, Energy) Annual Rate Eases to 4.2% from 42-Year High of 4.3%
By Max Sato
(MaceNews) – Consumer inflation in Japan eased in all three key measures in September as energy subsidies continued to push down electricity and natural gas utility costs and markups in processed food prices are peaking, data from the Ministry of Internal Affairs and Communication released Friday showed.
The core measure (excluding fresh food prices), which is closely watched by Bank of Japan policymakers, indicated a clear slowdown, with its year-over-year rise decorating to a 13-month low of 2.8% in September from 3.1% in August. The prices for food excluding perishables were now 8.8% above year-earlier levels, down from 9.2% in August. Energy prices slumped 11.7% on year after falling 9.8% the previous month.
Underlying inflation measured by the core-core CPI (excluding fresh food and energy) moderated to 4.2% from a 42-year high of 4.3% seen in August, July and May while the total CPI’s annual rate also eased to a 12-month low of 3.0% from 3.2%.
The Bank of Japan will update its medium-term economic projections and risk analysis in its quarterly Outlook Report due on Oct. 31 after its two-day policy meeting. The BOJ board may revise up its median forecast for consumer inflation for fiscal 2023 ending next March closer to 3% from 2.5% projected in July and 1.8% in April while making little change to 1.9% forecast for fiscal 2044 and 1.6% for fiscal 2015.
The key points from CPI data:
* The national average core consumer price index (excluding fresh food) rose 2.8% from a year earlier in September, compared to the median economist forecast for a 2.7% rise (forecasts ranged from 2.6% to 2.9%). It is the 25th straight year-over-year increase after rising 3.1% in both August and July and marked the lowest since 2.8% in August 2022. The slowdown to 3.3% in February this year was the first deceleration in 13 months after climbing 4.2% in January.
* The 4.2% rise in January is a 41-year high, the largest increase since the 4.2% gain in September 1981, with or without the direct impact of the sales tax hikes in 2014 (from 5% to 8%) and in 1997 (from 3% to 5%) and the introduction of the sales tax in 1989. The tax was further raised to 10% in 2019 but had only a limited impact on prices.
* Service prices in Japan have been on the rise in recent months as more firms are raising wages to secure workers, although the average cash earnings per employee are still below year-earlier levels after adjusted for inflation. Service prices excluding owners’ equivalent rent rose 2.9% on the year in September, little changed from 3.0% in August and 2.9% in July. Goods prices excluding fresh food gained 3.5%, showing a clear slowdown from 4.1% the previous month.
* BOJ board members are looking for a clearer sign that wages will continue rising substantially before considering scaling back years of monetary easing.
* The underlying inflation rate — measured by the core-core CPI (excluding fresh food and energy) — rose 4.2% on the year in September, following increases of 4.3% in both August and July, 4.2% in June, 4.3% in May and 4.1% in April. It is the 18th straight year-over-year increase and was just above the median economist forecast for a 4.1% rise (forecasts ranged from 4.1% to 4.2%). The 4.3% rise is the largest in 42 years, since the 4.5% increase June 1981. This narrow measure is without the effects of energy cost fluctuations. It has been pushed up by markups in various items including processed food.
* The total CPI rose 3.0% on year in July for the 25th consecutive year-over-year increase but it was the slowest since 3.0% in September 2022 following increases of 3.2% in August and 3.3% in both July and June. It was in line with the median forecast of a 3.0% rise (forecasts ranged from 2.8% to 3.1%). Fresh food prices, a volatile factor, rose 9.6% on year and pushed up the overall index by 0.40 percentage point after rising 5.3% (up 0.22 point) the previous month. The 4.3% increase January’s total CPI is a 41-year high, the largest since the 4.3% rise in December 1981.
* Among key components of the CPI basket of goods and services, energy prices dipped 11.7% on year in September, pushing down the CPI by 1.00 percentage point, after falling 9.8% with a negative 0.84-poing contribution in August. The 0.7% drop (minus 0.06 point) in February 2023 was the first decline since March 2021.
* Gasoline prices rose 8.7% on the year, adding 0.19 percentage point to the CPI in September, after rising 7.5% (a positive 0.16-point contribution) and posting their first year-over-year rise in six months in July with a 1.1% gain (plus 0.02 point) and a 1.6% drop (minus 0.04 point) in June. Retail gasoline prices hit record highs in August and early September as the government had scaled back subsides to refineries and the yen depreciated, keeping import costs relatively high.
* Electricity charges plunged 24.6% on the year (a negative 1.01-point contribution) in September after falling 20.9% on the year (minus 0.85 point) in August. In February 2023, they marked the first drop since July 2021. The government began providing utilities subsidies in January (reflected in February bills onward). The program was originally scheduled to end in September but the government has decided to extend it throughout the year to help ease the pain of many households.
* The prices for “city gas” (natural gas supplied through pipelines) slipped 17.5% with a negative 0.20-point contribution in September, after falling 13.9% (minus 0.16 point) in August and posting their first year-over-year decline in 21 months in June, down 2.8% (minus 0.03 point).
* The prices for food excluding perishables, which has a large weight in the CPI basket, posted the 27th straight year-over-year increase but the pace slowed to 8.8% (plus 2.01 points) from 9.2% (plus 2.08 points) in August and July, which was the largest increase in more than 46 years since the 9.9% surge in October 1975. Sharp price hikes were seen among many items including prepared food (curry), eating out (hamburgers), snacks including ice cream (the heat wave lingered) and soft drinks, as seen in recent months.
* The prices for household durable goods marked their 18th consecutive gain but the pace of increase decelerated further to 1.5% (plus 0.02-point contribution) in September from 3.0% (plus 0.04 point) in August, 6.0% (plus 0.09 point) in July and 6.7% (plus 0.10 point) in June and six months of double-digit percentage gains through February. Many people had purchased furniture and appliances in the early phase of the pandemic when they spent more time at home.
* Mobile phone communications fees rose 10.2% (plus 0.13 point) in September after rising 10.2% (plus 0.13 point) in both August and July and showing a smaller 2.9% gain (plus 0.04 point) in June.
* Accommodations, which have a relatively small weight in the CPI basket of goods and services, rose 17.9% on the year (plus 0.17-point contribution) in September after rising 18.1% (plus 0.19 point) in August and 15.1% (0.15 point) in July. Pent-up demand for traveling remains relatively strong and the number of visitors from overseas has increased steadily, offsetting the slight downward pressure from travel subsidies.