Japan’s consumer price index up 1.5% in May, but down 0.1% when food, energy stripped out

June 27, 2008
By Ken Worsley

Data released by the Ministry of Internal Affairs and Communications shows that Japan’s core consumer price index rose 1.5% in May, showing an increase for the eighth month in a row. Media outlets have scrambled over one another to announce that May’s 1.5% rise was the highest seen since a 1.8% jump back in March 1998. That may be true, but it’s worth looking a bit deeper into the numbers than that.

First, it’s important to remember that Japan counts energy prices as part of core inflation, although fresh food is excluded. Thus, it’s helpful to strip both fresh food and energy costs in order to get a clearer picture of the situation. In March, we commented that once both fresh food and energy costs were stripped from the CPI, consumer prices had actually seen a rise of 0.1% - the first rise seen since 1998. In April, that figure slid back to -0.1%. Here’s a breakdown for May:

May general nationwide consumer price index: +1.3%
May general nationwide consumer price index (excluding rent): +1.5%
May nationwide core CPI (excluding fresh food): +1.5%
May nationwide consumer price index (excluding fresh food and energy): -0.1%

Here is what the major media is either not reporting or downplaying in its coverage of this issue: Once fresh food and energy are both stripped out, we still see deflationary pressure in Japan’s consumer prices. This seems somewhat surprising, since we expect higher oil prices to have affected prices all the way from procurement to production, and shipping to storage - at least until the product hits this consumer - where we then expect to see increased prices to offset those supply-side costs. This is not, however, what’s happening, and perhaps we need to take a closer look at household spending statistics in order to see why. For now, though, it’s still food and energy prices that are driving Japan’s current inflationary trend. Food prices were up 2.4% in May and energy prices were up 10.5%, with gasoline prices soaring 18%.

Little relief appears to be in site for June or July’s figures, as oil just hit $140 a barrel.

Here’s a breakdown of price increase by major category:

Fuel, light and water charges +5.5%
Transportation and communication +2.9%
Food +2.4%
Education +0.7%
Clothes and footwear +0.4%
Miscellaneous +0.3%
Housing +0.1%
Medical Care -0.5%
Reading and recreation -0.8%
Furniture and household utensils -0.6%

Economic and fiscal policy minister Hiroko Ota (who was the last minister standing up and insisting that the Japanese economy was still in deflation a few months ago) put it simply: ”The CPI is not pulled up by demand. This is no good.”

Especially with spaghetti prices increasing 32.2%, cheese 27.7% and chocolate 23.2%.

Filed Under Consumer Price Index, Economic Reports