The Statistics Bureau of Japan’s Ministry of Internal Affairs and Communications today announced adjustments to the data used in the basket to calculate the government Consumer Price Index. The proposed changes are being made to better reflect shifting trends in Japan’s demographics, capturing the spending habits of an aging population, as well as to reflect spending pattern changes of the population at large – such as for example the higher cost of beverage purchases in chain coffee shops.
*** There has been little discussion as of yet on the impact of these proposed adjustments to the CPI calculation. We suspect little political motive and only a minor impact from these routinely proposed CPI item changes. But in the meantime we suspect the Bank of Japan, who we believe have reached the end of their easing cycle despite continued market expectations for further stimulus, may be fishing for new measures to better reflect their assessment of a healthy and rising inflation trend, even if at a slightly disappointing pace (see SGH 4/14/15, “Japan: A Likely End to BOJ Eases”). ***
Three or Four Measures?
The CPI basket is reviewed every five years, as a course of law, by the Statistics Bureau of the Ministry of Internal Affairs. The Bureau announced on July 17 it would be planning to make changes, ostensibly due to changes in consumption habits and Japanese lifestyles.
And the final plan by the Statistics Bureau has not been determined yet. The bureau has opened the changes to public comment from July 18 to August 21, but we do not expect the Bureau to revise their initial proposals by any wide margin after the review period, just possibly minor changes.
Having said all that, we believe the Bank of Japan has slowly but surely been attempting to impart the impression (and its confidence) in a rising inflation trend to the public through new statistical measurements.
While it may sound overly complicated in light of Bank of Japan Governor Haruhiko Kuroda’s simple 2% inflation target, the Statistic Bureau has been issuing 1) CPI, 2) CPI without perishable foods (Japanese core CPI) and 3) CPI without food (not only perishable foods but also processed foods) and without energy (Japanese core-core CPI, equivalent to US type core CPI).
When the BOJ issued the Monthly Report of Recent Economic and Financial Developments on July 17, they for the first time showed 4) core-core CPI without perishable foods (but with processed foods included) and without energy. This equivalent is not released by the Statistic Bureau (but it is possible to calculate).
And the most recent data (May 2015) for the various CPI measures (y-o-y % change) we are told are as follows:
1) CPI 0.5%
2) Core CPI 0.1%
3) Core-core CPI 0.4%
4) “New” CPI by BOJ 0.7%
The BOJ had originally been explaining inflation trends using mainly Core CPI, based on detailed internal research reports concluding that to be the most suitable in judging the longer-term trends in inflation. This month the BOJ has undergone some personnel shifts in its Monetary Affairs Department, which has resulted in new studies including the creation of the new good CPI measure.
It may not be too much of a stretch to suspect the department may be fishing for other measures to assert the case that prices are firmly rising.