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Japan’s core Consumer Price Index fell at fastest pace ever in May

June 30, 2009
By Ken Worsley


On Friday, the Ministry of Internal Affairs and Communications announced that Japan’s consumer price index had fallen 1.1% in May. May’s figures well exceeded the 0.1% drop seen in March and April, and showed a decline for the third consecutive month.

As Japan includes energy prices as part of its core CPI, it’s always helpful to look at what the CPI looks like with energy stripped out. Here’s a breakdown of CPI categories for May:

  • May general nationwide consumer price index: -1.1% (Previous: -0.1%)
  • May general nationwide consumer price index (excluding rent): -1.2% (-0.1%)
  • May nationwide core CPI (excluding fresh food): -1.1% (-0.1%)
  • May nationwide consumer price index (excluding fresh food and energy): -0.5% (-0.4%)

Unlike April, with fresh food and energy costs stripped out (”core core CPI”), we see less deflationary pressure. In fact, when only “goods” are considered, prices saw a 2.0% average fall.

Let’s take a look at how individual categories contributed to May’s CPI figures:

  • Food +1.0%
  • Education +0.9%
  • Housing -0.1%
  • Clothes and footwear -0.1%
  • Miscellaneous -0.2%
  • Medical care -0.2%
  • Furniture and household utensils -1.6%
  • Reading and recreation -2.5%
  • Fuel, light and water charges -3.0%
  • Transportation and communication -5.6%

Transportation and communication prices saw the largest drop in May, down to -5.6% after having been at -2.0% in April. Fuel, light and water charges were just behind, falling to -3.0% after having been at +0.2% in April.

Needless to say, this is bad news. Fears of deflation emerged in the media back in October, though some question whether Japan ever truly emerged from deflation last year. In its write-up on the May data, the Nikkei includes comments from Norio Miyagawa, an economist at Shinko Research Institute: “Clearly, you can’t explain the drop in prices just with cheaper oil.”

Clearly not, as including energy prices pushes up CPI by 0.6%. At a press conference on Friday, Finance Minister Kaoru Yosano told reporters:

Price falls may be due to extremely weak demand and reduced output…We must carefully watch price movements and manage policy to prevent Japan’s economy from collapsing or persistent price falls that would hold back growth.

“[P]revent Japan’s economy from collapsing”? That sounds scary. On Monday, however, Bank of Japan Deputy Governor Hirohide Yamaguchi stood in front of the upper house audit committee to announce that Japan is not facing a deflationary spiral, but rather that high oil prices from 2008 are being worked out of the CPI. Rather than facing a deflationary spiral, Yamaguchi asserted that the CPI “will see increasingly moderate declines moving forward.”

At least Yamaguchi is being somewhat honest. It will be interesting to come back to his comments towards the end of summer and beginning of fall, as it was November 2008 when Japan’s “core-core” CPI went flatline.

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Comments

3 Responses to “Japan’s core Consumer Price Index fell at fastest pace ever in May”

  1. Matt on July 2nd, 2009 8:57 am

    Ken:

    I thought that you might get a kick out of this:
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aEMEP10Ama6g

    It is probably the most aimless article that I have ever read in a professional news publication. I read it with a pretty wide grin.

  2. Ken Worsley on July 2nd, 2009 6:42 pm

    Matt, thanks for the link! Thoughts to come later…

  3. Ken Worsley on July 5th, 2009 10:45 pm

    Matt, There’s no doubt that androgynous fashion is popular with some segments of young people. I do think I’ve seen more young men in Japan over the past decade take part in such fashion trends.

    But does that correlate to (let alone cause) how they behave once they graduate from university? Not at all.

    Terms such as “herbivore” creep up from the Japanese media from time to time, and they always make me suspicious. Like parasite singles, hikikomori, NEETS, and a host of other labelled groups that have come up before them, “herbivores” are simply a small group of people with similar interests. They’re a marketing demographic. I have a hard time taking their supposed effect on Japanese society seriously becuase there are no hard numbers given on how many of them exist, nor even proof of their existence as a cohesive group with a shared set of values and principles.

    I don’t understand the idea that young men are somehow less interested in developing their careers due to some kind of “feminization” process. Women are also interested in careers, perhaps moreso than ever. I don’t see how “blurring of gender identities” (if this is indeed happening) would have any effect on attitudes toward jobs and careers.

    If there is a problem with demotivation amongst young workers and a lack of effort put into career-building, it seems to me the problem lies not in fashion, but elsewhere. There are plenty of disgruntled 25 year-olds in suits who go to work every day.

    I think the problem with the brithrate is far too serious a problem to be explained in the context of a silly term made up to describe one subculture of Japanese society.

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