Japan’s Inflation at 16-Month Low Amid Slowing Food Price Hikes

In November, Japan experienced a decline in core inflation to its lowest point in 16 months, according to data released by the Ministry of Internal Affairs and Communications. The core consumer price index, excluding volatile fresh foods, showed a 2.5% increase from the previous year, marking a decrease from October’s 2.9% and hitting its lowest level since July 2022.

Contributing to the slowdown in inflation, electricity bills dropped by 18.1%, and gas prices decreased by 11.6% in November. Although prices of nonperishable foods rose by 6.7%, the pace slowed compared to October’s 7.6%. Similarly, the price climb of household durables eased to 2.6% from the previous month’s 3.2%.

Conversely, hotel fees experienced a notable surge of 62.9%, reflecting robust demand from inbound tourism.

Yoshiki Shinke of Dai-ichi Life Research Institute noted an overall slowing trend in inflation, stating, “Companies across industries are willing to raise prices, but as import prices decrease, companies are not hastily proceeding with price hikes.” He emphasized that wage increases in the spring, companies passing on import costs, and demand trends will be crucial factors determining inflation in the coming months. Shinke suggested that if wages increase, it may revitalize price hikes.

Shinke’s predictions indicate that December and January core CPI figures will likely stay within the 2% range, continuing the overall slowdown trend. However, he anticipates a temporary spike to close to 3% in February due to government electricity subsidies initiated last February.

The recent core CPI figure exceeded the Bank of Japan’s 2% price target for the 20th consecutive month. Despite this, the Bank of Japan maintained its negative interest rate policy, with Governor Kazuo Ueda expressing the need for further observation despite the increased likelihood of reaching the target.

There are expectations that real wages will surpass inflation in fiscal 2024. Real wages had declined for 19 consecutive months until October, indicating that inflation had outpaced pay raises. November’s headline consumer price index for all items increased by 2.8%, while the core-core index, excluding fresh foods and energy, rose by 3.8%.

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