(MaceNews) – Consumer prices in Tokyo, a leading indicator of the national average, turned weaker in October in the face of lower energy costs and a slower rise in processed food prices as well as the government program to support the pandemic-hit tourism industry with hotel discounts, data from the Ministry of Internal Affairs and Communications released Friday showed.
The key points:
* The core consumer price index (excluding fresh food) in the capital’s 23 wards dipped 0.5% on year in October, as expected. It was the third straight month of year-on-year decline, with the pace of decrease accelerating from September’s 0.2% drop. On the upside, Tokyo prices received some support from the end of base-year effects caused by the government subsides to provide free education of preschoolers, which began October last year.
* The core-core CPI (excluding fresh food and energy) — a key indicator of the underlying trend of inflation – fell 0.2% on year in October after being unchanged in September.
* The total CPI marked the first year-over-year decrease in three years, down 0.3% in October after rising 0.2% in September.
* Processed food prices rose just 0.2% y/y in October after +0.9% in September, pushing up the total CPI by 0.05 percentage point, instead of a larger +0.18 point positive contribution seen the previous month.
* Energy costs continued to fall from year-earlier levels, down 5.6%, lowering the total index by 0.29 percentage point (vs. -3.3%, -0.17 point in September).
* Accommodations fees slumped 37.1% in October, trimming the total CPI by 0.59 percentage point (vs. -30.0%, -0.46 point in September) as government-subsided travel support program continued helping hotel operators offer hefty discounts to domestic travelers. Property insurance premiums were flat on year after rising 12.5% in September (+0.07 percentage point contribution).
* On the upside, prices for privately owned kindergartens jumped 31.2% y/y, providing a slightly positive contribution to CPI (+0.01 percentage point), reversing year-long drops that ended in September with an 84.9% plunge, which pushed down the total CPI by 0.31 point.
OUTLOOK REMAINS DIM
The latest data is unlikely to change the views among government and Bank of Japan policymakers that the domestic price trend remains flat and consumer prices will show only a gradual pickup in the next fiscal year onward.
In its quarterly Outlook Report released Thursday, the Bank of Japan said the median forecast for the core CPI (excluding perishables) by the nine-member board was revised down slightly to -0.6% for fiscal 2020 from -0.5% projected in July.
Excluding the direct impact of a sales tax hike to 10% from 8% that took effect in October 2019 (+0.5 percentage point), and free education subsidies by the government (-0.4 percentage point), the core CPI reading is projected to fall 0.7% in the current fiscal year, revised down from -0.6% forecast in July.
The median inflation forecast for fiscal 2021 was revised up slightly to +0.4% from +0.3% made in July and the forecast for fiscal 2022 was unchanged at +0.7%.
The BOJ repeated its recent assessment that risks to both growth and inflation are “skewed to the downside” and its outlook remains “extremely unclear” amid the lingering impact of the global pandemic.
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