Consumer Price Index Fell 0.1% in April

May 25, 2007
By Ken Worsley

Make it three months in a row. After drops of 0.1% in January and 0.3% in March, CPI fell 0.1% again in April, according to data released today by the Ministry of Internal Affairs. Japan’s core CPI excludes fresh food prices.

Bloomberg managed to find the most positive PR spin that could be put on the news:

Japan’s consumer prices fell at a slower pace in April, signaling gains may soon resume, making it easier for the central bank to raise interest rates.

That’s what we’re betting the Bank of Japan will be saying as well. Now that the OECD is pressuring Japan to raise interest rates, and BOJ Governeor Toshihiko Fukui continues to announce that he sees no reason why interest rates cannot be raised while consumer prices are in negative territory, it’s starting to look like a forgone conclusion that the rates will be going up again soon. But how soon? We’re still saying not until after the Upper House elections in July.

Quoted in the Nikkei, Noriaki Haseyama, an economist at Dai-Ichi Life Research Institute, agrees:

The consensus now is that a rate hike (of quarter percentage point) will come somewhere between August and November, and that sounds reasonable. Though there were some price-boosting factors (in April), the headline figure was still minus. Upward price momentum isn’t strong. You can’t say that price conditions are improving based on the latest number.

March’s 0.3% fall in the CPI was the largest fall in the past two years, making talk of a ‘gains’ a bit misleading. April’s 0.1% decrease in CPI might be a return to normalcy, but it’s hardly charging ahead, despite beliefs that CPI was dragged downward by last year’s high oil prices and will recover once those are flushed out.

Nationwide, “Furniture and household utensils” (-1.5%) and “Reading and recreation” (-1.4%) fell the most. Here in Tokyo, the CPI was flat against April of last year.

Economic and Fiscal Policy Minister Hiroko Ota resurrected the Cabinet Office’s fence-sitting line at a news conference today: