Higher fuel prices drove up Tokyo’s cost of living at the fastest pace in 16 months, although the increases were still tiny compared to those confronting consumers in other economies where central banks are pulling back pandemic-era stimulus.
Consumer prices, excluding those for fresh food, in Tokyo's densely populated 23 wards, seen as a leading indicator of nationwide prices, have increased 0.3% in November from a year earlier, the internal affairs ministry reported Friday. The result matched the median estimate from economists.
Overall gains continued to be limited by plunging mobile phone fees, even as energy prices surged 14%, the most since 1981.
Japanese inflation, long a global laggard, is slowly but steadily picking up after climbing above zero at the end of summer amid spiking global commodity prices that have boosted costs for local businesses to a 40-year high.
The latest inflation data comes after Prime Minister Fumio Kishida on Wednesday announced the release of national oil reserves in concert with the United States and other nations to cool surging crude prices. Japan’s gasoline prices at the pump have risen to a seven-year high.
Still, the country’s consumer price gains remain far below the Bank of Japan’s 2% target, locking the central bank into its stimulus for the foreseeable future even as the U.S. Federal Reserve and other peers start to change direction.
"Inflation is likely to keep rising gradually due to energy prices, but it won’t be sustainable until Japan has wage growth, more vibrant economic activity and companies are confident enough to raise prices,” said economist Takeshi Minami at Norinchukin Research Institute.
A raft of government moves to help households and struggling businesses have also clouded Japan’s price picture.
A discount campaign to help the ailing tourism industry in 2020, for example, is now causing hotel prices to jump by more than 50% by comparison. Those gains could unwind when the Go To Travel subsidies are reinstated as part of a ¥55.7 trillion stimulus plan announced by Kishida last week.
Meanwhile, the cost of phone service has plunged by about half under government pressure on telecoms to lower their fees. Stripping that out, core inflation would likely hit 2% nationwide this month, according to Dai-Ichi Life Research Institute.
"We expect Tokyo’s CPI gauges to pick up further in December on higher import prices,” said Yuki Masujima, economist at Bloomberg Economics.
Rising energy and commodity costs, though, appear to be a consistent factor. BOJ board member Junko Nakagawa, in an interview with Bloomberg this week, said she sees energy markets exerting upward pressure on Japanese prices along with a weaker yen, which boosts the cost of imports.
Even as Japanese businesses grapple with climbing costs for raw materials, most are still reluctant to pass their pain on to consumers, who are known for being very price sensitive after years of deflation and anemic wage growth.
One risk for the economy is if higher gas prices start to discourage shoppers. Consumer spending is key to the recovery now that the virus is coming under control and with traditional growth drivers of trade and manufacturing being squeezed by global supply chain issues.
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