In August Japan consumer prices index dropped by 0.2% over year, in spite of 0.5% increase on a monthly basis (table 1). Among the goods and services, which became more expensive or their downward trend moderated food, transportation, communication and recreation services are to be underlined.
Main upward pressure came from food, which became expensive by 7.4% compared to July. Fresh fruit prices rose by 6.5% m/m, after 0.8% decline in July. As a strong upsurge was stated in August of the last year, food prices declined by 0.4% over year. However, this growth of prices has a seasonal character, as long as most of food products become cheaper in autumn.
Transportation and communication services prices rose fifth month in a row. In August nationwide prices of this services rose by 0.9% m/m, following a gain of 0.6% in July. Public transportation became more expensive and the prices climbed by 1.8% m/m. In Tokyo, transportation and communication prices went notably down in September.
Record high oil prices lifted up fuel and electricity prices. In particular utility index rose by 0.3% m/m, compared with 0.1% reduction in prior month. It was the result of increased natural gas prices and moderated downward trend of electricity prices.
The positive impact on inflation from the above mentioned goods and services prices rise or moderated downward trend was partly offset by a decline of furniture and clothing prices.
Furniture and household good prices dynamics remains descending. Their prices fell by 0.3% m/m and 1.8% y/y. The downward trend will be accelerating, as in Tokyo furniture and household good prices significantly decreased in September.
During the reporting period clothing and footwear became 1.7% m/m cheaper in the whole country. It was the third decline during the last three months, which was caused by a fall in shirts and sweaters prices. In Tokyo clothing and footwear surged in September, which will be included in nationwide prices in the next month.
In August consumer prices index, excluding fresh food prices, demonstrated 0.2% increase on a monthly basis. However, its dynamics remains downtrend over year.
In spite of the rapid economic growth in South East Asian countries inflation in Japan moved into a negative zone, mainly due to profound stagnation in real estate market and relatively low food prices (chart 1). Deceleration of the US economy will put additional downward pressure both on Japanese economy and inflation. As a consequence of this the CPI didn’t get over zero level and again declined. The main 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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August
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July
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June
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…
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August
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July
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June
|
|
Nationwide CPI
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|
|
|
|
|
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- y/y
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0.5
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-0.1
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-0.2
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|
0.7
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-0.3
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0.0
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- m/m
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-0.2
|
0.0
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-0.2
|
|
0.9
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0.3
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0.5
|
|
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August
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July
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June
|
…
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August
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July
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June
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Tokyo CPI
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|
|
|
|
|
|
|
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- y/y
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0.1
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0.4
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-0.2
|
|
0.0
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0.6
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-0.3
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- m/m
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-0.2
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-0.3
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-0.1
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|
0.5
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0.8
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0.2
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Source: Cabinet Office
Chart 1
Source: Cabinet Office, Bank of Japan
