Consumer price gains in Tokyo slowed for a second month in December, in a sign that cost-push inflation may be easing, while thrifty consumers also cut back on discretionary outlays.
Consumer prices excluding fresh food rose 2.1% in the capital, decelerating from 2.3% in November, the internal affairs ministry said Tuesday. The reading was the weakest since June 2022 and matched economists’ consensus forecast.
Tokyo’s figures serve as leading indicators for national data to be announced next week.
A separate report showed that Japanese households cut their spending in November by 2.9% from the previous year, as the rising cost of living prompted shoppers to become more selective about what to buy. The drop was steeper than the consensus call for a 2.3% decline.
"Price hikes are pushing down consumer confidence more than expected, and this impact probably varies by income bracket. It’s particularly pronounced among lower-income groups,” said Moe Nakahama, a research associate at Itochu Research Institute. "As a result, consumption turned out weaker than thought.”
Together, the reports indicate that cost-push inflationary pressure is easing, with the data underscoring patchiness in the recovery after the economy contracted at the steepest pace since the height of the pandemic during the summer quarter.
The data will give the Bank of Japan added incentive to retain its negative rate this month, with the Jan. 1 quake in the northwest already lessening the likelihood of an imminent hike in the eyes of many. BOJ authorities convene in two weeks at a gathering that concludes on Jan. 23, where in addition to setting policy they’ll release updated outlooks for prices and growth.
"Demand-driven inflation appears confined to a small group of products and services — too limited to convince the BOJ that it has achieved broad-based, durable inflation or that its 2% price target is secured,” Bloomberg economist Taro Kimura said.
Tuesday’s data showed price gains of processed food in Tokyo slowed to 6% in December from 6.4% a month earlier, while utility prices fell at a steeper pace. Gas and electricity prices in the capital both sank about 22%.
Prime Minister Fumio Kishida’s decision to keep utility subsidies in place on electricity and gas has helped reduce the overall inflation rate by 0.45 percentage point, the same impact as in November. The impact from those steps will wane once year-on-year comparisons begin to reflect ramped-up subsidies that took effect in February 2023.
A deeper measure of the inflation trend that strips out fresh food and energy prices also decelerated, sliding to 3.5%, a fourth consecutive month of cooling. Service prices rose 2.2%, slowing from 2.3% in November, which was the fastest pace in 26 years excluding sales tax impacts.
The latest price data are broadly in line with the BOJ’s view that import-driven price pressure is subsiding. Gov. Kazuo Ueda has maintained that even with the waning impact from import prices, he sees an increasing likelihood Japan is poised to escape from the low-inflation environment that plagued the economy for the last 25 years.
Ueda is now focused on the outlook for wage hikes and indications that corporations have changed their mindsets. At new year events, the governor said he sees some shift in price-setting behaviors among businesses, adding that he hopes wages and inflation rise in a balanced manner this year.
More data on wage trends will gradually become available as companies engage in annual wage negotiations. The pay talks will culminate in March, and many BOJ watchers therefore expect the BOJ’s policy board to end the subzero rate at the April monetary policy meeting.
A number of firms have signaled their intention to conduct ambitious wage hikes for some segments of their staff. Nomura Holdings announced a 16% pay increase for younger employees in its brokerage subsidiary, while Tokyo Electron is reportedly set to raise its starting salary by an average of about 40%.
Hotel costs continued to rise. Hotel and lodging fees jumped 59% from a year earlier. Resurgent inbound tourism helped spur those gains.
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