In January Japan consumer prices index fell by 0.2% on a monthly basis, which kept inflation at 0.7% during the last twelve months (table 1). Upward pressure came largely from increases in utility and health care services, as well as food and clothing prices.
Record high oil prices pushed up all kinds of energy carrier prices. As a result, utility index showed 0.8% growth on a monthly basis, following a 1.2% gain in prior month. It was the result of soared electricity and natural gas prices. Medical services and goods prices rose after a decline in December. Nationwide prices of these services and goods increased by 0.2% m/m. It was the result of tumbled medical services prices. Medicines and medical goods rose in price as well.
Clothing and footwear became cheaper by 6.9% in January compared to December. This reduction was well above the prior level which in its turn favored the positive impact of clothing on the inflation. Moreover, in Tokyo there was stated an acceleration of their prices growth rate in February, which will be included in nationwide prices next month.
Consumers spent 1.9% m/m more on fresh food, thanks to increased prices of fresh fruits. Excluding the latter’s prices all other food prices showed a modest gain. As 1% increase was stated in January of last year, food prices rose only by 0.5% over year. However, this moderation of prices has a seasonal character.
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 furniture and recreational services prices.
Furniture and household good prices are declining for the second month in a row. Their prices fell by 0.1% m/m. The medium term dynamics is also still downward. Moreover, it will accelerate in February as in Tokyo furniture and household good prices significantly fell. In January nationwide prices of recreational goods and services tumbled down by 0.7% m/m. Recreational services became cheaper than others.
At the same time consumer prices index, excluding food, alcoholic beverages and fuel prices, demonstrated 0.1% decrease over year. The dynamics of this index has remained descending since August of 1998.
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. The 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, metal and wheat prices can promote inflation growth. However, oil prices are rising mainly because of the deterioration of relations between Iran and Western countries, recognition of Kosovo’s independence. In view of the aforesaid we think that the base interest rate will remain unchanged at 0.5% in the first half of 2008.
JAPAN ECONOMIC INDICATORS
Table 1
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2008
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2007
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Jan
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Dec
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Nov
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…
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Jan
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Dec
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Nov
|
|
Nationwide CPI
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- y/y
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-0.2
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0.2
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-0.2
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-0.2
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0.1
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-0.5
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- m/m
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0.7
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0.7
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0.6
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|
0.0
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0.3
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0.3
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|
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Feb
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Jan
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Dec
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…
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Feb
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Jan
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Dec
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Tokyo CPI
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|
|
|
|
|
|
|
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- y/y
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-0.3
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-0.3
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0.2
|
|
-0.4
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-0.2
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0.1
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- m/m
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0.4
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0.3
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0.4
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|
0.0
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0.1
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0.3
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Source: Cabinet Office
Chart 1
Source: Cabinet Office
