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Japan’s consumer price index up 1.9% in June, for 9th straight monthly increase

July 30, 2008
By Ken Worsley


With a 1.9% jump in June, Japan’s core consumer prices have now risen every month so far this year, and for nine consecutive months overall, according to data released by the Ministry of Internal Affairs and Communications last week. Until September 2007, we had seen the exact opposite; Japan’s core consumer prices had fallen for nine consecutive months until that point.Last summer, Bank of Japan officials shrugged off the continually falling CPI by saying that lower energy prices had not yet been worked out of the CPI

Of course, Japan includes energy prices as part of its core CPI, and we have now seen for two straight years that it is necessary to keep track of not only “core” consumer prices, but also what the CPI looks like when energy is also stripped out. Here’s a breakdown of CPI categories for June:

  • June general nationwide consumer price index: +2.0%
  • June general nationwide consumer price index (excluding rent): +2.3%
  • June nationwide core CPI (excluding fresh food): +1.9%
  • June nationwide consumer price index (excluding fresh food and energy): +0.1%

Thus, with fresh food and energy prices stripped out (Japan also strips out the prices of alcoholic beverages, which have been on the rise), we see a 0.1% increase for the second time this year. This is only the second increase seen in this category over the past decade.

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

  • Fuel, light and water charges +6.8%
  • Transportation and communication +4.3%
  • Food +3.6%
  • Education +0.7%
  • Miscellaneous +0.6%
  • Clothes and footwear +0.5%
  • Housing +0.2%
  • Furniture and household utensils -0.4%
  • Medical Care -0.5%
  • Reading and recreation -0.6%

These figures are little changed from May. The same categories that rose in May rose again in June. Those that fell in May also fell in June. The largest differences can be found in the top three rising categories, which all saw increases at least 1% higher than a month ago.

Looking at individual categories, about 60% of products surveyed saw a rise in prices. Transportation expenses are pushing up the prices of fresh food as well; carrots, negi and spinach all cost over 10% more than a year ago.

The big question now is whether or not core CPI will see a jump above 2.0% in July, as 2.0% is what the Bank of Japan’s policy board considers to be the upper limit of price stability. We are looking for a boost above the 2.0% level. Few expect to see a rate hike in August or September, but could the BOJ’s hand be forced by its own policy?

Filed Under Consumer Price Index, Economic Reports 

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Comments

8 Responses to “Japan’s consumer price index up 1.9% in June, for 9th straight monthly increase”

  1. Vimy on July 31st, 2008 9:28 am

    Ken,

    Possibly a dumb question, but why would you strip out food and energy prices? These seem to be crucial indicators because without them, you wouldn’t have a very active economy.

  2. Ken Worsley on July 31st, 2008 1:08 pm

    Vimy, it’s not a stupid question at all. One of the reasons for tracking CPI is to watch inflation targets in order to decide monetary policy, ie, interest rates. Fresh food and energy prices are often very volatile, and the thinking is that their movement may not reflect the underpinnings of an economy so much as they reflect non-systemic factors such as OPEC’s mood at the time (in the form of production cutbacks), or droughts.

    So, as I was saying, Japan’s core CPI (with energy) is approaching 2.0% - and that is the BOJ’s upper limit of price inflation. But is it really sensible to raise interest rates in the current economic situation? The core CPI with energy included is not painting an accurate picture of the economy, and it’s important to look at all four of the indexes.

  3. Jeremy on July 31st, 2008 4:17 pm

    it is sensible to raise rates, that would force the companies which should not be operating to go under since they’ll have to pay back their debts at a higher rate, the banks in japan already let companies operate at high debt ratios making the situation more fragile.

    gas prices are rising from Aug. 1st, tomorrow, don’t love how crude is trading lower but prices are rising. is that because the japanese governement itself buys crude on the futures market then resells it to the oil companies operating in japan. then this oligarchy gets together and decides the prices. much like butter, milk,etc. correct me if I’m wrong

  4. Ken Worsley on July 31st, 2008 4:36 pm

    it is sensible to raise rates, that would force the companies which should not be operating to go under since they’ll have to pay back their debts at a higher rate

    Even if that were BOJ policy - which I seriously doubt - there’s no way they would say so out loud.

  5. Jeremy on July 31st, 2008 7:17 pm

    yeah, i know, actually their policy is the exact opposite, keeps rates down even when they should be raised so thier buddies (who own the companies out there) can keep getting their huge salaries while their companies are on life support from the Japanese tax payers, or should I say the Japanese gov’t bonds.

    we all know that MOF decides rates and EVERYTHING else behind the scenes anyway.

  6. Vimy on July 31st, 2008 7:30 pm

    Thanks, Ken. That clears things up for me.

  7. Ken Worsley on July 31st, 2008 8:55 pm

    Jeremy, I thought it was decided by the council of Wise Men meeting at the Imperial Hotel every Wednesday morning… ;)

  8. Martin on August 1st, 2008 10:32 pm

    I thought they met at the Hotel Okura.

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