In October Japan consumer prices index rose by 0.3% bothon a monthly and yearly basis (table 1). Among the goods and services, which became cheaper, fuel, transportation services and food are to be underlined.
Record high oil prices pushed up all kind of energy carrier prices. As a result, utility index showed 0.7% growth on a monthly basis, compared with zero percent gain in prior month. It was the result of advanced fuel, electricity and natural gas prices.
Hereupon transportation and communication services prices edged up. In October nationwide prices of these services rose by 0.3% m/m. Public transportation became more expansive than others. In Tokyo, transportation and communication prices significantly rose in November.
Consumers spent 0.6% m/m more on fresh food, due to increased prices of fresh fruits. As a marked decrease was stated in October of last year, food prices soared by 0.6% over year. Nevertheless, this growth of prices has a seasonal character, as long as most of food products become cheaper in autumn.
Furniture and household good prices dynamics remains positive, for the second month in a row. Their prices advanced by 0.4% m/m. But the medium term dynamics is still downward. Moreover, it will accelerate in November as in Tokyo furniture and household good prices significantly fell.
The positive impact on inflation from the above mentioned goods and services prices increase or moderated downward trend was partly offset by a slippage of medical services, clothing and footwear prices. Medical services and goods prices fell for the first time since March 2007. Nationwide prices of these services and goods decreased by 0.5% m/m. It was the result of tumbled medical services prices. Medicines and medical goods fell in price as well.
Clothing and footwear became more expensive by 1.1% in October compared to September. This gain was well below from the prior level which in its turn favored the negative impact of clothing on the inflation. Nevertheless, in Tokyo there was stated an acceleration of their prices growth rate in November, which will be included in nationwide prices the next month.
In October consumer prices index, excluding food, alcoholic beverages and fuel prices, demonstrated 0.3% decrease over year. The dynamics of this index has remained descending since March of 1999.
In spite of the rapid economic growth in South East Asian countries inflation in Japan fluctuated within zero level, mainly due to profound stagnation in real estate market and relatively low utility services prices. Crisis in the US real estate market will put additional downward pressure both on Japanese economy and inflation. As a consequence of this is that the CPI is well below the Euro Area and US inflation rates (chart 1). The only positive factor remains a decline of unemployment rate to nine-year low level, which may forward the inflation rate in medium term, as the population in Japan is decreasing.
In short term, the rise in oil and metal prices can promote inflation growth. However, oil prices are rising mainly because of the deterioration of relations between Iran and Western countries. In view of the aforesaid we think that the base interest rate will remain unchanged at 0.5% in the fourth quarter of 2007.
JAPAN ECONOMIC INDICATORS
Table 1
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2007
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2006
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|
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Oct
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Sep
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Aug
|
…
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Oct
|
Sep
|
Aug
|
|
Nationwide CPI
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|
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|
|
|
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- y/y
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0.3
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0.0
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0.5
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|
-0.2
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0.0
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0.7
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|
- m/m
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0.3
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-0.2
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-0.2
|
|
0.4
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0.6
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0.9
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|
|
Nov
|
Oct
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Sep
|
…
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Nov
|
Oct
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Sep
|
|
Tokyo CPI
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|
|
|
|
|
|
|
|
- y/y
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-0.3
|
0.1
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0.2
|
|
-0.5
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-0.1
|
0.0
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- m/m
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0.3
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0.1
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-0.1
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|
0.2
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0.4
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0.5
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Source: Cabinet Office
Chart 1
Source: Cabinet Office, Bank of Japan
