The Bank of Japan’s chief economist urged the government to adjust consumer price data to better reflect housing costs, a change he estimates would boost the inflation rate by as much as 0.2 percentage point.
By more accurately taking into account changes in quality of rented housing over time, consumer price data would better capture the cost of living, said Eiji Maeda, director-general of the research and statistics department. Doing so would increase the nation’s CPI by 0.1 to 0.2 point, he said.
Maeda was speaking at a meeting of the Cabinet Office’s statistics committee, which aims to work out revisions to the figures by August next year as part of a regular five-year review — and within the period that the central bank is aiming to reach its inflation target.
Data Friday are forecast to show Japanese inflation was at 0.4 percent in May, with the BOJ’s preferred gauge at zero — far from its 2 percent goal.
“Discussions on the CPI rebasing from the second half of this year could attract considerable attention in academic circles,” Barclays PLC analysts Akito Fukunaga and Naoya Oshikubo wrote in a May 12 report. “This, in turn, may imply a risk of year-on-year CPI levels diverging sharply from those under the current base year.”
The statistics bureau already takes into account advances in technology for goods like personal computers in its CPI. Extending such treatment to housing costs would bring Japan’s inflation gauge closer in line with practice in the U.S.
Revisions to the way that imputed rent is calculated would lift a weight that BOJ board member Koji Ishida has said has depressed Japan’s inflation rate.
“Japan’s housing stock is aging as the population grows older and shrinks,” Maeda said. “In this environment, at this point, there is a downward bias in the index because it doesn’t take into account changes in quality as housing ages with time.”
While the central bank’s main gauge of inflation has been pushed down by the tumble in oil, there are signs of inflation pressures building in the world’s third-biggest economy. This can be seen in one alternative gauge, which captures changes in prices of new products that account for almost half of goods sold at an average retail shop, and often don’t show up in the official data.
In August 2011, the last time the government revised the way it crunches the CPI data, the BOJ’s key inflation measure was given a major haircut — core CPI for June 2011 was revised down to minus 0.2 percent from 0.4 percent.
Revisions in 2006 made after the BOJ ended a quantitative easing program and raised its interest rate showed — after the fact — that overall consumer prices had actually been falling when the central bank ended QE, with the episode becoming known as “the CPI Shock.”
Ishida, one of the BOJ’s nine board members, said in February he has placed importance on inflation that excludes imputed rent. By that measure, consumer prices climbed 0.8 percent in April from a year earlier, compared to a 0.6 percent gain in the overall CPI that includes imputed rent.
“Imputed rent is an expenditure that is not actually paid in the market,” Ishida said. “It has long been on a declining trend, and if this trend continues, this will exert strong downward pressure on the CPI for all items, particularly in the phase when the rate of increase in the prices of goods and services accelerates.”