·
Japan's Statistics Bureau in the
Ministry of Internal Affairs and Communications (MIC) yesterday reported
consumer prices for November. Generally, these prices seem to be
working their way into an upturn, but the extent of this firming trend
depends on the price measure being applied and what time comparison is
being used.
· The total index, the so-called General CPI, continues to decline on a year-over-year basis. In November it was 0.8% below November 2004, the weakest change since October 2002. Seasonally adjusted and compared month-to-month, however, it looks to be stabilizing: it has actually increased from 97.5 in June to November's 97.8.
·
As in many other countries, a "core" rate is used
for government policymaking and investment planning. Core rates are
supposedly less volatile that total indexes and are defined to exclude items
where supply forces predominate. So their movements reflect such
non-economic events as bad weather, war and possibly political priorities, not
so much market influences. Up to now in Japan, the "core" has
been the general index less fresh food. This latter item is clearly more
subject to weather and seasonal forces than to consumer demand pressures.
The subset of the CPI excluding fresh food has been deemed the most useful for
monetary policy focus. Thus, yesterday [overnight in Western markets
between Monday and Tuesday] the November report made news when this core index
rose on a year-to-year basis for the first time since October 2003 and for only
the second time since the spring of 1998. On a month-to-month basis, this
index too has been rising over the course of this year, suggesting that the
year-to-year pattern could stay positive. At least one news account
reported that some investors were beginning to look for a change in the Bank of
Japan's current "quantitative monetary easing" as this price trend
might be sustained during 2006.
·
At the same time, with this release, the MIC has introduced
still another core rate, one similar to those used elsewhere which exclude both
food and energy products. Haver Analytics added this new series to the
JAPAN database just this morning. Only two years of history are available,
running back to November 2003, so these data are not yet seasonally
adjusted. This price measure is still going down. In the month from
October, the index fell from 97.4 to 97.1, which in turn is off 0.2% from
November 2004. The earliest levels, in November and December 2003, were
97.9. So it appears that the pick up in the standard core rate may be due
to energy, and when that is excluded, general prices remain soft. Among
various "subgroups" of prices, clothing has risen for well over a year
and furniture has edged up just the last three months. Housing costs and
reading and recreation appear to be stabilizing after long downward paths.
Thus, while the pace of deflation has surely slowed, it is hard to read any
threat of renewed inflation into this price behavior.
· At the same time, the Japanese economy itself is firming. Today, for example, METI reported that industrial production for November was up 1.4% from October, a fourth consecutive monthly advance after some hesitation in the spring and early summer. So forces may be developing for more sustainable growth and firmer prices in Japan, but the mixed behavior of the various CPI measures leaves implications for monetary policy fairly vague at the present time.