MNI ANALYSIS: Japan CPI Stagnating; Energy Support To Fade

By Max Sato

     TOKYO (MNI) - Japanese consumer inflation is stagnating below 1% due to

discount sales at supermarket chains and the lingering effect of competition

between mobile telephone carriers, and the slow pace will continue into next

year as support from higher energy prices fades.

     Core CPI, which excludes volatile fresh food prices, rose 0.7% on year in

September, with the pace of increase unchanged from that in August, data

released Friday showed. The September result was weaker than the MNI median

forecast of +0.8%.

     Energy prices rose 7.6% on year in September after rising 7.0% in August

while the prices for processed food including alcoholic beverages gained 1.0%

after a 0.9% increase the previous month. Partly offsetting these increases,

mobile communications fees fell 5.4% in September, the same pace of decline as

in August, indicating their negative contribution may be peaking.

     Going forward, the base-year effect of higher energy prices will fade and

keep the CPI rise under 1%.

     "If gasoline prices stay around the current levels, their positive

contribution to the total CPI will peak out in November or December," said an

official at the Ministry of Internal Affairs and Communications that compiles

CPI data.

     "The base-year effect of the April hike in electricity charges will

continue until next spring but given the high weighting of gasoline prices, the

pace of increase in consumer prices is likely to be slow."

     The support energy prices give to headline CPI is large, as shown by the

fact that core-core CPI, which excludes fresh food and energy, rose just 0.2% on

year in September, a rate unchanged from August.

     The average economist forecast for core CPI is only 0.62% for fiscal 2017

ending in March 2018 and just 0.82% for fiscal 2018, according to the latest

monthly ESP Forecast Survey of 41 economists by the Japan Center for Economic

Research.

     This supports expectations that the Bank of Japan will revise down its CPI

projection for the current fiscal year at its policy meeting next week from the

BOJ board's median projection of +1.1% made in July. It was already lowered from

the +1.4% forecast in April.

     While BOJ policymakers are engaged in a prolonged battle to guide inflation

to their 2% target through large-scale monetary easing, stable prices are good

news for households amid slow wage hikes.

     "With employee compensation rising gradually, as seen in GDP data, stable

prices are positive for consumer confidence," said Toshimi Nishizaki, director

of the Department of Business Statistics at the Cabinet Office.

     "Even at a time of rising prices, consumer confidence will improve if wages

rise at a faster pace. You cannot push up consumer prices to 2% without wage

hikes. That's why the government is calling for a 3% wage increase next year."

     Government and BOJ leaders are calling on firms with record profits to

share more wealth with workers but companies in general remain cautious amid

uncertainty over the economic growth outlook.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$,MGJ$$$]