Tokyo Inflation Slows, Bolstering BOJ Case for Standing Pat
Tokyo Inflation Slows, Offering Support for BOJ Stand-Pat Stance
(Bloomberg) -- Momentum in Tokyo inflation weakened in January for the first time since April, slipping more than analysts expected and bolstering the Bank of Japan’s case for continued stimulus.
Consumer prices in the capital, excluding those for fresh food, rose 0.2%, slowing from December’s 0.5% gain, the ministry of internal affairs reported Friday. Economists had forecast a 0.3% pace for the leading indicator of national price trends.
Inflation cooled as recent gains in hotel prices petered out. The cost of energy continued to rise, but not enough to make up for the loss.
The slowdown in Tokyo inflation signals, once again, just how different Japan is from other major economies where surging consumer prices are pushing central banks to rein in pandemic-era stimulus.
Japanese businesses remain loath to pass the rising cost of energy and other materials onto their customers, who are extremely price-sensitive after years of deflation.
While the Federal Reserve this week signaled a March liftoff for interest-rate hikes, Governor Haruhiko Kuroda this month stressed that so-called policy normalization was “absolutely not” on the table for the Bank of Japan.
“Japan’s price situation is so different from other major economies,” said Takeshi Minami, chief economist at Norinchukin Research Institute. For Japanese companies that don’t raise prices, higher costs can “eat up resources that might have been used for wage growth and capital spending.”
Energy costs contributed almost 0.9 percentage points to overall prices, which rose a total of 0.5% in January. That shows just how important climbing oil markets have been in spurring any pulse in Japan’s core inflation numbers.
Utility bills rose 19.3% from a year earlier, the biggest jump in almost 41 years.
Gains in hotel fees, which had been a major contributor to overall inflation in recent months, cooled to less than 1% in January, sapping a lot of the overall momentum. Accommodation costs had been soaring because of year-earlier comparisons with a period when government-sponsored discounts for the travel industry were still in effect.
What Bloomberg Economics Says...
“The slowdown in Tokyo’s core inflation (excluding fresh food) in January was mainly caused by a higher base of comparison for fire insurance and accommodation prices. ...Higher prices of daily necessities, including food and gasoline, may damp consumer sentiment -- potentially slowing the recovery in household spending.”
--Yuki Masujima, economist
To read the full report, click here.
Despite Kuroda’s protestations, a temporary jump in Japan’s consumer prices expected this spring could revive some speculation that the BOJ might be forced this year to make some policy tweaks.
Prices are expected to rise from April, once the impact of last year’s sharp cuts to mobile phone fees drops out of the data. Some BOJ members see a chance of inflation getting closer to their target at least temporarily when that happens, according to a summary of board discussions at its January meeting.
Nationally, cheaper phone charges have been pushing down the overall inflation index by around 1.5 percentage point for many months.
Read More: Spike in Gasoline Prices Prompts Japan to Roll Out Subsidies
While gains from the phone-effect aren’t seen lasting, the country is grappling with elevated prices in specific areas.
Businesses are facing the biggest jumps in input costs in decades. Meanwhile, more expensive fuel and cooking essentials have contributed to the highest inflation expectations among households since 2008.
Japan’s gasoline prices also rose to a 13-year high this week, prompting subsidies from Prime Minister Fumio Kishida’s government to cap the increases. Inflation, especially if it continues to hit basic items like gas or food, could become a pocket book issue for voters as summer elections near.
Figuring out how prices are affecting consumer spending will be harder now amid record cases of the coronavirus that have triggered renewed restrictions across large swathes of the country.
©2022 Bloomberg L.P.