In September Japan consumer prices index dropped by 0.2% over year, due to zero percent increase on a monthly basis (table 1). Among the goods and services, which became cheaper, fuel, transportation and recreation services, as well as medical care are to be underlined.
Transportation and communication services prices tumbled down following an increase during five consecutive months. In September nationwide prices of these services fell by 0.8% m/m. Public transportation became cheaper and the prices dropped by 2.8% m/m. In Tokyo, transportation and communication prices slightly up in October.
The modest decline in oil prices at the end of summer pushed down fuel and electricity prices. In particular utility index showed zero percent growth on a monthly basis, compared with 0.3% gain in prior month. It was the result of slipped fuel prices and decelerated upward trend of natural gas prices.
Recreation services and goods prices significantly fell. Nationwide prices of these services and goods decreased by 1.1% m/m. It was the result of downward trend acceleration of the recreational goods prices. Entertainment and tourist services fell in price as well.
The negative impact on inflation from the above mentioned goods and services prices fall or moderated upward trend was partly offset by an increase of food, furniture and clothing prices. Main upward pressure came from clothing and footwear which became more expensive by 6.4% in September compared to August. It was caused by a rise in shirts and sweaters prices. In Tokyo there was stated a deceleration of their prices growth rate in October, which will be included in nationwide prices the next month.
Furniture and household good prices dynamics became positive, for the first time since April of 2007. Their prices advanced by 0.2% m/m. But the downward trend is still moderating, as in Tokyo furniture and household good prices significantly soared in October.
Fresh fruit prices rose only by 0.3% m/m. As a marked decrease was stated in September of last year, food prices declined by 0.3% y/y, after a 3.6% slump in August. Nevertheless, this growth of prices has a seasonal character, as long as most of food products become cheaper in autumn.
In September consumer prices index, excluding food, alcoholic beverages and fuel prices, demonstrated 0.3% decrease over year. The dynamics of this index has remained downtrend since the March of 1999.
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, relatively low fuel and utility services prices. Deceleration of the US economy and credit crunch will put additional downward pressure both on Japanese economy and inflation. As a consequence of this the CPI remains below the zero level (chart 1). 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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Sep
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Aug
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July
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…
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Sep
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Aug
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July
|
|
Nationwide CPI
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|
|
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|
|
|
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- y/y
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0.0
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0.5
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-0.1
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|
0.0
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0.7
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-0.3
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- m/m
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-0.2
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-0.2
|
0.0
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|
0.6
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0.9
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0.3
|
|
|
Oct
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Sep
|
Aug
|
…
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Oct
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Sep
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Aug
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|
Tokyo CPI
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|
|
|
|
|
|
|
|
- y/y
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0.1
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0.2
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0.4
|
|
-0.1
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0.0
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0.6
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- m/m
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0.1
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-0.1
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-0.3
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|
0.4
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0.5
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0.8
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Source: Cabinet Office
Chart 1
Source: Cabinet Office, Bank of Japan
