In February Japan consumer prices index fell by 0.2% on a monthly basis, which accelerated inflation at 1% during the last twelve months (table 1). Upward pressure came largely from increases in utility and transportation services, fuel and food prices.
Fresh food rose in price by 1.4% over year, thanks to increased prices of fresh vegetables. All other food prices showed a notable gain mainly due to bakery products. As 0.8% m/m decrease was stated in February of last year, food prices rose by 1.2% over year.
Record high oil prices pushed up all kinds of energy carrier prices. Utility index remains unchanged on a monthly basis, following a 0.8% gain in prior month. As a result this index accelerated to 4% y/y. It was the result of soared fuel and natural gas prices. Hereupon transportation and communication services prices edged up. In February nationwide prices of these services rose by 3% y/y. Moderation of communication services prices downturn had a significant positive impact. In Tokyo, transportation and communication prices significantly rose in March.
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 clothing, recreational and medical services prices. Clothing and footwear became cheaper by 2.5% in February compared to January. This reduction was well above the prior level (February 2007) which in its turn favored the negative impact of clothing on the inflation. Moreover, in Tokyo their prices growth rate reduced in March, which will be included in nationwide prices next month.
Nationwide prices of medical services and goods services sank by 0.1% m/m. It was the result of tumbled medical services prices. Medicines and medical goods fell in price as well. In February nationwide prices of recreational goods and services tumbled down by 0.4% m/m. All constituents of this index became cheaper.
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 and the 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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|
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Feb
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Jan
|
Dec
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…
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Feb
|
Jan
|
Dec
|
|
Nationwide CPI
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|
|
|
|
|
|
|
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- y/y
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-0.2
|
-0.2
|
0.2
|
|
-0.5
|
-0.2
|
0.1
|
|
- m/m
|
1.0
|
0.7
|
0.7
|
|
-0.2
|
0.0
|
0.3
|
|
|
Mar
|
Feb
|
Jan
|
…
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Mar
|
Feb
|
Jan
|
|
Tokyo CPI
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|
|
|
|
|
|
|
|
- y/y
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0.6
|
-0.3
|
-0.3
|
|
0.4
|
-0.4
|
-0.2
|
|
- m/m
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0.6
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0.4
|
0.3
|
|
0.1
|
0.0
|
0.1
|
Source: Cabinet Office
Chart 1
Source: Cabinet Office
