A record drop in cellphone fees offset the rise in energy prices in Japan in April resulting in the country recording the ninth straight month of a drop in core consumer prices. This suggested that the economic recovery of the country – which is already considered fragile, will be weighed down by weak demand and higher costs.
According to a separate data set, there was a rise in input costs in companies while factory expansion was slow in the month of May which highlighted the risks faced by the Japanese economy which is highly dependent on its manufacturing industry.
According to experts, these sets of the data also show the challenge for Japan’s policy makers to tackle resurgence in Covid-19 infections without stunting the economy that is already lagging behind in recovery compared to other major economies in recovery from last year’s pandemic induced clump.
“Inflation fell in April but that was almost entirely due to a plunge in mobile phone tariffs,” said Tom Learmouth, Japan economist at Capital Economics. “Looking past temporary distortions, we think underlying inflation will continue to rise a bit further, though unlike in some other advanced economies.”
There was 0.1 per cent year on year drop in April in the core consumer price index (CPI), which does not include the impact of volatile fresh food costs, which was smaller than a median market forecast for a 0.2 per cent fall, according to data published by the government. The data was in line with March’s decline.
The data showed that there was a 0.5 per cent drop in CPI because of a record 26.5 per cent in cellphone charges with carriers followed the call of the Japanese Prime Minister Yoshihide Suga’s call of easing of the burden on households.
In contrast there was a 0.7 per cent rise in energy prices in April which the first such rise for the sector since January of 2020. This rise was attributed to rise in crude oil prices and the lower base impact of the slump of last year.
Analysts said that the capital expenditure plans of companies could face a huge risk if there is any decline in manufacturers’ profits which would in turn result in the economy not having a driver with the country struggling to arrest the fall in consumption.
A private sector survey showed on Friday that there was acceleration in increase in input prices for manufacturing sector firms while there was a slight easing of output price growth which resulted in the widest gap between the two measures in almost a decade.
Following the shrinkage in the Japan’s economy in the first quarter, analysts are expecting a modest recovery in the April-June quarter because the government has been forced to re-introduce state of emergency curbs because of new Covid-19 infections – which impact the already weak consumption.
There has barely been any growth in inflation in Japan with companies choosing not ot pass on the higher costs to consumers and households.
(Adapted from Investing.com)