In December, Tokyo is likely experiencing an uptick in consumer inflation, driven primarily by rising food prices and the government’s recent decision to suspend gas and electricity subsidies. According to a Reuters poll, economists predict that the core consumer price index (CPI) in Tokyo will accelerate to an annual rate of 2.5% in December, up from 2.2% in November. This increase may compel the Bank of Japan to reconsider its current monetary policy, particularly after it decided to maintain interest rates at a record low of 0.25%. Analysts suggest that the end of government subsidies will lead to higher energy costs, contributing to this inflationary pressure.
The anticipated rise in inflation can be attributed not only to energy prices but also to higher costs for essential food items, notably rice. Analysts at SMBC Nikko Securities indicate that with the cessation of subsidies for electricity and city gas, energy costs are expected to rise significantly, causing a notable increase in the core CPI. It’s important to note that the core CPI accounts for oil products but excludes fresh food prices, allowing for a clearer indication of underlying inflation trends. However, the government has announced plans to reinstituate subsidies for electricity and gas for a limited period of three months beginning in January to help mitigate the impact of elevated fuel costs.
Nationally, Japan’s core CPI, which also excludes fresh food but encompasses energy items, saw an increase of 2.7% in November, reinforcing the country’s ongoing inflationary trend observed in consumer prices. The government is expected to release the December CPI data for Tokyo on December 27, which will provide further insight into the economic landscape. As inflation continues to rise, the Bank of Japan may find itself in a position where it needs to take action to curb escalating prices, thus adjusting interest rates in the upcoming year.
In addition to rising consumer inflation, Japan’s industrial output is projected to have contracted by 3.4% in November relative to the previous month, following a gain of 2.8% in October. This decline, as indicated by the poll, is attributed to decreased production in key machinery sectors, including semiconductor manufacturing and transport machinery. Notably, output reductions at a significant overseas aircraft manufacturer contributed to this downturn. The industry ministry is scheduled to release November’s factory output figures alongside retail sales data on December 27, which is anticipated to reveal a 1.7% year-on-year increase in retail sales.
Meanwhile, Japan’s job market appears to show stability, with the unemployment rate in November predicted to remain at 2.5%, unchanged from October. Additionally, the jobs-to-applicants ratio is expected to hold steady at 1.25, reflecting ongoing demand for labor despite the industrial contractions. These employment statistics, expected to be published on December 27, will provide an essential context for understanding the implications of inflation and output trends on the labor market.
In summary, Tokyo’s economic indicators are pointing toward rising inflation driven by higher food and energy costs, potentially prompting a shift in monetary policy from the Bank of Japan. The industrial sector faces challenges with a predicted contraction in output, while the job market remains stable. As data and insights are released in the coming days, they will be critical for policymakers and economists in evaluating the ongoing economic conditions and the necessary measures to sustain growth and manage inflation.