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Japan’s nationwide core consumer prices up 0.4% in November on higher fuel, utility prices

Just two days ago, Bloomberg published its survey of economists and predicted that Japan’s core consumer price index had risen 0.3% in November. This afternoon, the Statistics Bureau released its CPI data and we found that in November, Japan’s nationwide core CPI went up 0.4 percent.

First, we need to keep in mind that Japan includes energy costs in core CPI. Rising oil prices have thus led to an expectation that consumer prices would rise in November, which turned out to be true. Looking at the data, we see how that plays out:

• November nationwide consumer price index: +0.6%
• November nationwide core CPI (excluding fresh food): +0.4%
• November nationwide consumer price index (excluding fresh food and energy): -0.1%

The report tells us that gasoline prices were up 10.9 percent in November, while kerosene prices jumped 11.8 percent. Here’s how the categories break down:

Fuel, light and water charges: +2.2%
Transportation and communication: +1.5%
Food: +0.9%
Clothes and footwear: +0.7%
Education: +0.7%
Miscellaneous: +0.5%

Housing: +0.0%

Medical care: -0.3%
Reading and recreation: -0.6%
Furniture and household utensils: -1.6%

This is the second month in a row that we’ve seen an increase in core CPI, following October’s rise. What might all this mean? Bloomberg speculates that higher oil prices may prove very damaging to the economy, especially if consumer spending is hit hard:

Households cut spending 0.6 percent, the first drop since July…Wages fell and employment prospects worsened as job seekers outnumbered vacancies for the first time in two years…The jobs-to-applicants ratio fell to 0.99 in November from 1.02 in October, the Labor Ministry said. Wages slid 0.2 percent from a year earlier. Pay has only risen in one month this year.

We will have more on the household spending data (and the good news on unemployment) soon, so we won’t get too much into it here. However, the cut in household spending does not bode well for GDP growth in the current and upcoming quarter. We know that the government is planning on spending 215 billion yen in an attempt to offset higher oil costs, but psychologically, this probably won’t make much of a difference. Higher bills are higher bills, and general sentiment seems to be that with the higher costs being inevitable this winter, there’s a need for a bit of belt-tightening when it comes to household finances.

With just over half of GDP represented by domestic demand, it’s looking more and more as if exports are going to have to carry the bulk of any GDP growth we may see in this quarter and over the next. Just today, we learned that the government claims “Japan’s economy can grow 2 percent or more in the next four years if the government carries out reforms.”

Would those reforms include an increased sales tax?

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